What started out as a strong and positive 2017, seems to have turned into a sleepy, sideways stock market environment. The peak of this year remains on March 1st and we haven’t been there since. We’ve also just seen the largest volatility spike since the election. Right now the VIX is at 16; around the November election, it spiked over 20 (Morningstar data). Normally a spike corresponds with a more volatile market, but so far, the movement has been surprisingly quiet.
There are certainly global issues and new uncertainties right now (Russia, North Korea, etc.), but each time a negative news event occurs, the market shakes it off by the end of the day. The largest concern we have at the moment is how soon corporate tax reform will be addressed. We believe much of the run-up in the market was due to an expected expansion in earnings. If that gets stopped in its tracks, that could put a stop to market growth this year.
US Stocks – one of the most beneficial exercises we’ve been doing so far this year is a daily review of various market pairs, very specifically Large Cap Value vs Large Cap Growth. In February, both sides had similar movement upwards. However, since the March peak, Large Cap Growth has held up much better than Large Cap Value (see chart below). That is largely due to its focus on the technology sector. Since January 1st of this year, we’ve focused our investment on the Growth side, which has played out well for our investors.
Bonds – despite the Federal Reserve raising interest rates twice in the past few months, that doesn’t seem to be causing any real strain on the bond market. Since the last rate hike in March, US Treasury bonds have actually done reasonably well.
Gold, Real Estate, and Volatility – since last year, we’ve been developing supplemental strategies for clients who like a little extra focus on these specific aspects of the market. If you have an interest in any of them, please contact us and we’ll help you work one into your overall strategy. Here is a quick overview:
Gold Strategy – buys the GLD (Gold ETF) that tracks the price of gold, as long as we believe the trend is positive
Real Estate Strategy – may own one of a few select Real Estate stocks (not ETFs) that have a strong dividend history
Volatility Strategy – based on spikes in the VIX, the strategy seeks to gain from a drop (post-spike) in volatility.
Overall, we’re still positioned more aggressively than last year, which suggests optimism, but of course, we currently have a few cautionary positions to help out if the market or economy should take an unexpected hit.
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.