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Volatility Can Work Both Ways

Weekly Commentary, 1/19/16 – 1/22/16

Crude oil futures prices plunged midweek to as low as $27.32 a barrel before soaring later and closing the week at $32.29 per barrel. The price action affected world markets. On Wednesday, the major U.S. equity averages were experiencing losses bordering on 3.5%. The markets firmed-up on comments from Mario Draghi, European Central Bank President, who suggested that it may provide more stimulus at its March meeting as the inflation outlook had weakened “significantly”. He said there are “no limits” on tools the ECB can use to achieve steady inflation just below 2%.  Investors also took comfort in comments from the Japanese central bank that “conditions for additional easing have fallen into place.”

While the Dow Jones Index rose 0.66%, the S&P 500 Index tacked on 1.4% and the NASDAQ Composite climbed 2.3%. The past month has been horrid for equities. Year to date the S&P 500 is off approximately 7% and the Russell 2000 small cap index is flirting with correction territory down approximately 10%.

The big picture hasn’t changed. The trend of the market is undeniably negative. Only 25% of the S&P 500 stocks are above their 200-day moving average.  While the Dow Jones Index and the S&P 500 are down 12% and 10%, respectively, from their records, most stocks in the S&P 500 have already fallen by more than 20% from their recent highs. Fundamentally, the recession word is beginning to be mentioned in mainstream media. According to FactSet, with 15% of the companies in the S&P 500 having reported results, earnings for the index is expected to contract 6% for the fourth quarter.

The equity markets were deeply oversold. Short and intense rallies like we experienced this week are to be expected in bear markets. We won’t know for months, or maybe years, though, if we are in a bear market and Wednesday’s trading was a head fake before moving lower or if it was a bottom.

We believe the safest course of action now is to remain defensive and continue to monitor the markets while strictly following our processes. 

The Stadion Managed Account Risk objectives are managed using a “core/satellite (Flex)” approach. The core positions will comprise 40-60% of the portfolio and are invested in equity, fixed income and money market instruments with the strategic allocation becoming more risk averse as the risk tolerance of each fund changes. In allocating the objective’s Flex assets the remaining 40-60% of each portfolio, Stadion uses a proprietary, rules based weight of the evidence model. The Flex portion of the portfolios remain in their most defensive position per the risk objective. 

 


Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose money. The investment strategies presented are not appropriate for every investor and financial advisors should review the terms and conditions and risks involved. Stadion’s actively managed portfolios may underperform during bull markets. Some information contained herein was prepared by or obtained from sources that Stadion believes to be reliable. There is no assurance that any of the target prices or other forward-looking statements mentioned will be attained. Any market prices are only indications of market values and are subject to change. The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock price. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. It is the most widely quoted measure of the overall performance of the small-cap to mid-cap company shares. It is not possible to invest directly in indexes (like the S&P 500) which are unmanaged and do not incur fees and charges. The Sharpe ratio measures the excess return per unit of deviation, or risk. Any references to specific securities or market indexes are for informational purposes only. They are not intended as specific investment advice and should not be relied on for making investment decisions.

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Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.