Weekly Commentary, 2/6/17 to 2/10/17

Major U.S. stock indexes reached new highs seemingly buoyed by news of President Trump’s impending announcement to come within the next three weeks, which according to President Trump will be “phenomenal in terms of taxes.” The President’s comments reignited investor enthusiasm with the possibility of lower corporate taxes. The major U.S. equity indexes rose between 0.80% and 1.20%. Upbeat earnings also helped lift stocks, while fourth quarter earnings are on pace to grow by 5% year over year according to FactSet.   

Fear reappeared in the bond market following Trump’s pledge to cut taxes. Bond prices retreated after their recent gains. The yield on the benchmark 10-year Treasury note settled at 2.40%, rising from 2.35% after Trump’s tax comments. 

From a technical perspective, the S&P 500 appears to have broken out of the previous consolidation range of 2,250-2,280 and resistance at 2,300. Market breadth measures confirmed the higher prices. Over 70% of S&P 500 stocks traded above their 50- and 200-day moving averages and the S&P 500 advance decline established another new high. As a result, growth stocks outperformed value stocks. 

There is still a lot of uncertainty around the President’s “phenomenal” tax plan. Will the tax plan include the highly debated border adjustment tax (BAT)? Can it reduce interest deductibility? Will tax cuts lead to higher deficits? What we do know is that whatever the plan turns out to be, it is a long way off. We believe the Stadion strategies are currently properly positioned, and we will continue to follow our disciplined processes.

Stadion Tactical Growth Strategy: As a dynamic asset allocation strategy, Stadion Tactical Growth Strategy follows an investment framework that analyzes the Sharpe ratio of over 1500 ETFs over multiple time periods each day. Given the simplicity of the Sharpe ratio, we believe we get a unique lens into market activity by seeing the interaction of return and risk. The proprietary ranking system will generally narrow our focus to those ETFs that track well known asset classes, indexes, and markets. We believe this disciplined process will guide us toward the best asset allocation, which means at times, we won’t use bonds for diversification or our equity asset class allocation won’t resemble the traditional capitalization structure. By our definitions, the strategy is roughly 70% correlated to U.S. equities. There were no changes in the strategy over the week.

Stadion Tactical Defensive Strategy: The Stadion Tactical Defensive Strategy uses a weight of the evidence model combining two trend-following elements to determine risk levels in the market. One element focuses on longer term cyclical trends (the core) and the other seeks to balance safety and return among shorter to intermediate trends (the satellite). The satellite and core portions of the portfolio are fully invested. There were no changes in the strategy’s holdings.

Stadion Managed Risk 100 Strategy: Stadion Managed Risk 100 Strategy, Stadion’s most conservative tactical strategy, uses a weight of the evidence model which focuses on shorter term trends to determine risk levels in the market and the most appropriate asset allocation. The shorter tem risk measures continued their recent improvement. The portfolio is fully invested. There were no changes in the strategy’s holdings.

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 U.S. 10-Year Treasury Note is a debt obligation issued by the United States government that matures in 10 years. The Sharpe ratio measures the excess return per unit of deviation, or risk. The core personal consumption expenditures index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices. 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.