Weekly Commentary, 03/27/17 to 3/31/17
Stock prices rebounded this week after last week’s decline. The S&P 500 Index gained 0.80% and the Russell 2000 Index jumped 2.27%. The Dow Jones Index lagged only adding 0.32%.
The previous week’s disappointment resulting from President Trump’s first legislative setback did not last long. Investor sentiment recognized that the failure to replace or repeal Obama care would allow the Repulicans to focus their full attention on implementing President Trump’s other agenda, like overhauling the tax code and loosening regulations. Others highlighted the underlying strenth of the global economy and the uptick in corporate earnings. Whatever the reasons, investor outlook brightened.
Additionally, the yield on the benchmark 10-year U.S Treasury note rose slightly to 2.41 from 2.36 on higher inflationary expectations.
Nine months after the Brexit vote, British Prime Minister Theresa May filed formal Brexit divorce papers to leave the European Union (EU), triggering years of uncertain negotiations that will test the cohesion of the EU. The Prime Minister now has two years to settle the many issues involved in untangling a forty-year relationship before the divorce comes into effect in March 2019.
Economic releases were mostly positive. The Conference Board reported that March consumer confidence reached the the highest level since December 2000 as the 125.6 print topped consensus estimates of 114.0. Improving consumer confidence is generally viewed to be positive by equity markets. Core personal consumption expenditures (PCE) is the Federal Reserve’s (Fed) preferred measure of inflation and is running slightly below their 2% target but forecasted to go higher. Even with modest economic growth, the Fed is expected to raise rates at least two more times this year.
Technically, the market recovered some of the previous week’s breadth deterioration. All the major indices are now trading back above their 50- and 200-day moving averages. It is a positive sign to see discretionary stocks establish new highs and smaller-cap stocks outperform. NYSE advancing stocks led declining stocks almost 3-1 for the week.
Both the technicals and fundamentals support higher equity prices. That doesn’t necessarily mean now is the time to become complacent, especially in the ninth year of a bull market. At Stadion we won’t attempt to predict the unpredictable. Rather, we will continue to follow our disciplined investment process attempting to manage risk in both bull markets and bear markets.
Stadion Tactical Growth Strategy: As a dynamic asset allocation strategy, the Stadion Tactical Growth Strategy follows an investment framework that analyzes the Sharpe ratio of over 1500 Exchange Traded Funds (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. There were no changes to the strategy for the week. By our definitions, the strategy is roughly 73% correlated to U.S. equities.
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 week’s improvement in the shorter term weight of the evidence model resulted moving back to a fully invested position in the satellite portion of the portfolio. The longer term up trend remains in place and the core portion of the portfolio remains fully invested.
Stadion Managed Risk 100 Strategy: The 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 week’s improvement in the shorter term weight of the evidence model resulted moving back to a fully invested position in the strategy.
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 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. 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 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.