After a volatile, yet slow, start to 2018, we’re now heading into the part of the year that historically brings more choppiness. According to the Stock Trader’s Almanac, the period between the end of May and Halloween is historically the lowest performing of the year. This is what prompts the popular axiom: “Sell in May and go away.” And that is right about where we are right now.
However, Large Cap Growth (which includes many Technology stocks) remains stronger than the S&P 5001 and the overall market. And lately, we’ve seen more strength in the Small Cap stocks than we have in quite a while (FastTrack Data). Our core equity models are still largely focused on the Large Cap growth area, in addition to the Technology sector. We believe this has largely lowered our volatility relative to the overall market.
The following chart, comparing Large Cap Growth and Large Cap Value, is one we’ve been watching over the past several months. While it illustrates the “sideways” movement of the market segments, it also shows that Growth is higher than where it started the year, while Value is lower.
Our V32 Indicator continues to be in “Protection” mode for the second quarter of 2018. What this means for us, is that we’ll continue to spend the entire quarter with a more defensive approach to the overall markets. That’s not to say we couldn’t see new record highs on the S&P 500 at some point, but our expectation is that we will continue a “choppy” and “sideways” market into the near future.
Bonds – The recent headlines regarding bonds have been specific to the 10 Year Treasury and their yield going over 3%. When yields are going up, that means bond prices are going down (which is bad if you own them). But wait – there’s more! – in the last week or so, the yield has fallen back below 3%, meaning that bond prices are going up again. This all amounts to a bunch of bond volatility, similar to stock volatility this time of year. For our holdings, we’ve kept durations on the short end to help with these potential volatility issues.
We’ve mentioned in previous month’s commentary that we were expecting bond yields to fall in the near future. We were just a couple of weeks early on the call. You can check out current rates HERE if you want to follow along.
Since we are entering the part of the year where there’s often not much to report in the markets, we hope everyone is gearing up for a great summer break. Life is short, get out there and see the world while you can!
1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
2 V3 is a proprietary indicator developed by Shadowridge Asset Management, LLC. Its objective is to take several market sentiment factors and project how to view US stock market investment in the following quarter: for Safety, for Balance, or for Growth.