Weekly Commentary, 04/03/17 to 04/07/17
Major U.S. Indexes proved resilient this week after receiving mixed messages from economic data and geopolitical events. The Dow Jones Index shed -0.03%. The S&P 500 Index lost -0.30%, and the Russell 2000 Index fell -1.54%.
Stocks began the week down after the release of disappointing auto sales. Prices rallied Wednesday morning after the monthly ADP payroll report showed better than expected job increases in March. Optimism didn’t reign long as stocks faded into the close after the Federal Open Market Committee’s (FOMC) minutes revealed the Federal Reserve’s (Fed) plan to unwind their $4.5 trillion balance sheet later this year. Also on Wednesday afternoon, Speaker of the House, Paul Ryan, said that tax reform could take longer than healthcare reform. Speaker Ryan said the House, Senate and White House weren’t yet “on the same page” regarding taxes. Thursday, attention was centered on overnight airstrikes in Syria, and Friday, investors were left to untangle the monthly non-farm payroll report. Nonfarm payrolls rose by 98,000 in March, well below the expected 175,00 new jobs. However, the data showed the unemployment rate dropping to 4.5% as more people joined the workforce.
Yields also proved resilient this week. The interest rate on the benchmark 10-Year U.S. Treasury Note ended the week virtually unchanged, settling at 2.37% after some intraweek volatility surrounding the Syrian airstrikes and the Fed panel beginning to discuss shrinking its balance sheet.
From a technical standpoint, the market is losing some short term momentum. After the multi-month price consolidation, shorter term risk measures can be sensitive and often give conflicting signals. The S&P 500 Advance-Decline is trending lower. The major large-cap indexes are still barely trading above their 50-day moving average and are close to major support levels. Small-cap stocks have been lagging since December and continue to be a drag on the market. The Russell 2000 Index is now trading below its 50-day moving average. We will continue to watch for further deterioration in the market’s internals and prudently manage client portfolios designed to succeed over a full market cycle.
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 74% 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 shorter term weight of the evidence model deteriorated over the week resulting in some risk reduction in the satellite portion of the portfolio. The shorter term trend remains up but is losing momentum as measured by our models. The longer term up trend remains in place and the core portion of the portfolio is 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 model deteriorated over the week resulting in some risk reduction in the strategy. The shorter term trend remains up but is losing momentum as measured by our models.
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.