Stocks Hit an Air Pocket on Wednesday!

Well, I wasn’t surprised that stocks were down yesterday after breaking below January 2018’s highs, BUT I was surprised at how big the drop was. I think the S&P-500 was down more than 4%, if my memory serves.

Increased volatility means greater risk to most investors, except those like Warren Buffet who bought so advantageously that they don’t really care. For our methodology, however, this will likely mean that we reduce our allocation to the S&P-500 early next week. Our methodology does not purport to predict the future; it allocates among asset classes based on recent market behavior.

Fortunately, we went into yesterday with 35% of our model in cash. OurĀ  gold, miners, and US TIP’s were either up or flat on the day, so we were not badly hurt.

I’ll be very interested to see if stocks hold here while people sort things out, or continue the crash behavior that occurred yesterday.

Cheers.

Test of the Previous Highs for Stocks

About a month ago, the S&P500 broke through the previous all-time highs and kept going up. Today, we see we are hovering just above that breakthrough level after pulling back some.

If we break back below the previous highs from January, 2018, there will be greater risk of a change in market psychology. I think the next couple of weeks will be key.

Bonds have already cracked, with TIP’s values dropping below their lows seen at the end of 2016 and beginning of 2017. With bond values dropping (and yields increasing), risk averse investors will soon pull money from stocks to lock in reasonable “guaranteed” returns.

Our methodology looks at the volatility of different asset classes as an indicator of risk in those assets. Bonds, Small Cap US stocks, and International Stocks are all very volatile (risky) relative to their behavior over the last year or so.

As we have already done, it is probably time for investors to raise cash by pulling money from International stocks, small cap stocks and bond funds. Individual bonds of high quality, held to maturity will be more and more attractive as interest rates rise.

Cheers.

 

We Have Upgraded Our Web Hosting Service

Apologies if you have not been able to reach portfoliowisdom.com for the last 2-3 days. We have upgraded our web hosting service and you should expect much better response time.

Thanks for being part of the Portfolio Wisdom community!

Dale

Ugly Day to Start September 2018

Every asset class in our model allocation is down today. Not a good sign. It makes me grateful we are holding 35% in cash for our conservative portfolio allocation (on the home page of portfoliowisdom.com).

Increasing volatility is one danger sign for asset classes that have been rising for months or years. Another danger sign is the increase of correlation between different asset classes… when all asset classes move up or down together.

One term, “melt up” is used when all asset classes are rising together. This happens when “everyone” is fleeing cash and trying to add risk assets to their portfolio. This can happen after a market crash, when the smart money starts to buy in… OR, more often, this can happen as the last blow-off at the end of a long bull market when the very last buyers can’t fight their greed and jump in. When this happens, it can be good to raise some cash … take some profits off the table.

Another term, “crash”, is used when all asset classes are falling together. Today is like that. If this continues for the week, it could mean trouble. Thankfully, we raised 35% cash for our managed portfolio clients a month or so ago.

Time will tell, although September is historically bad for US stocks.

Cheers.

The Fed Blinks. Stocks at New Highs. Gold Rebounds

President Trump has been loudly complaining that he (and our economy) are “not getting any help” from the Fed because of the repeated rate hikes over the last year or so.

Today, in a speech, the Fed Chairman sounded very dovish and accommodating to the market mavens in his first big policy speech. Stocks have pushed through the previous all-time highs and are up nicely today. Gold and the miners are having a huge day. The US dollar is down.

For now, the bull market in US stocks continues. Gold and the miners may have bottomed for the year, based on the signals by the Fed.

Time will tell.

Have a great weekend.

Back to All-Time Highs Again

Today US Stocks continue pushing at the all-time highs of January. We might even break through today.

The US dollar has been weakening the last couple of trading days as President Trump loudly complains that the Fed is working against him by raising interest rates. This dollar drop has helped gold and the other asset classes to recover from the heavy sell-off last week. Our models have recovered all of last week’s dip and then some.

Will the trip back to the highs bring out the sellers, or will Trump’s rhetoric embolden stock buyers for another leg up?

Time will tell.

Cheers.

The S&P500 Tests All-time Highs from January 2018

Earlier this week the S&P500 closed within a gnat’s eyelash of the all-time highs of January 2018. Last time, that’s where the sellers showed up.

It will be interesting to see if the sellers show up again and whether the sellers or the buyer win. September and October are historically not good for stocks, but the tendency is not strong enough to bet your portfolio on.

We’ll be watching closely to see what happens.

Have a great weekend.

Cheers.

Portfolio Wisdom Allocation Change on 7/30/18

Our allocations don’t usually change more than once every couple of months. However during market regime changes, our allocations may change more frequently … and that is a very good thing.

Yesterday, our model called for a reduction in TIPs and an increase in U.S. stocks and cash. Accordingly, we moved to over 50% allocated to stocks and about 20% cash in the model. TIPs, Gold, and International (non U.S.) stocks are all trending downward at this time.

Cheers.

Bonds Trending UP Again.

What does that say about the markets and the economy?

Everything the Fed has communicated has had to do with raising interest rates . . . and it has raised rates several times.

Nevertheless, Treasury Inflation-Protected Securities (TIPs), as an asset class, are trending up again (over the last 6 months). Our asset allocation model adjusted holdings as of yesterday (Monday, July 16). Gold and International Stocks are also trending down, while US stocks, both large cap and small cap are trending up. Since we now have three asset classes in an uptrend, we are reducing cash to 5% of our portfolio allocation.

Cheers.