Weekly Commentary, 2/22/16 – 2/26/16
As we suggested last week, the “Bulls” and “Bears” are fighting it out along that 1950 S&P 500 Index battle line.
Market sentiment last week continued to improve on better-than-expected economic data that pushed the S&P 500 up 1.5% to 1948. The closely followed index could not successfully hold above 1950 but did manage to clear the 50 day moving average. Our shorter term measures of the market’s internals began turning positive. U.S.-traded crude oil jumped 3.2% amid hopes major producers will limit output. Safe haven assets declined. The yield on the 10-year Treasury note rose to 1.76% from 1.69% on Thursday. Gold fell 1.5% on Friday.
The S&P 500 has rallied nearly 8% in 2.5 weeks. The main driver of the rally is improved sentiment. 2016 began with extremely negative sentiment and technicals: Chinese weakness, collapsing energy prices, credit deterioration, slumping corporate earnings, and even talk of a recession were the catalysts of a steep 12% decline. The market technicals (or the internals) continued their deterioration from already very low levels. But this punishing combination of weak fundamentals and technicals appears to have laid the groundwork for the subsequent surge.
The improving environment was enough to engage our models and we began adding risk back into our portfolios. If the rally continues we have capacity for adding risk. However, the market can be fickle and if it cannot advance or hold these improved levels we have the ability to reduce risk to increase protection against big losses. Stadion believes strategies that incorporate ongoing risk management can improve risk adjusted returns over a full market cycle.
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. Continuing from last week’s improvement in our risk measures broad equity exposure was added to the portfolio. If overall risk levels continue to improve and a true breakout of the trading range should occur we have the capacity to add equity exposure and participate in a new trend upward. In the meantime we believe we are properly positioned for the current levels of risk in the market, with each portfolio invested per its 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. 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.
Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.