Weekly Commentary, 1/30/17 to 2/03/17
The major U.S. stock indexes finished the week close to where they began. The Dow Jones Index lost 0.11% but closed above 20,000 at 20,071. The S&P 500 Index added 0.12% finishing at 2,297. The Russell 2000, which has been lagging recently, outpaced the Dow and the S&P gaining 0.51%.
Friday’s job report was right down the middle of the fairway. The benign release was enough to juice the markets but not strong enough to spook the Federal Reserve. On the positive side, nonfarm payrolls expanded by 227,000 last month, about 50,000 more than the street forecast. On the negative side, average hourly earnings were disappointing with only a 0.1% rise, which was less than expected, indicating little inflation pressure supporting a wait and see attitude from the Fed.
The Federal Reserve concluded a two-day meeting on Wednesday and voted to hold their benchmark federal-funds rate steady. Analysts interpreted the Fed statement as moderately dovish as describing the risks to their outlook for the economy as “roughly balanced,” which means the economy could perform better or worse than projected. They lifted rates by a quarter percentage point in December and hinted three quarter-point moves in 2017. The federal-funds futures market currently is pricing in a quarter-point increase in the June contract and another by December. Longer bond yields remain stable hovering near 2.50% on the 10-year U.S. Treasury note.
The markets have stalled at recent highs on lack of clarity on whether President Trump will be able to push through business friendly policies. We will not put our faith in Trump’s promises, but we will continue to follow our processes for managing client assets.
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. 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 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.