Even the winners seem to be getting tired now, or so it appears. After a strong, and what may be potentially a final, run-up in the market, we’re now trading in a very choppy, sideways direction. We had hoped for a stronger bounce off of the lows the markets hit in February, but as time goes on, that is looking less and less likely to us.
It is also interesting to note that many of the biggest names in long-term dividend payers are at or near 52-week lows. This includes companies suchas: Clorox, Pepsico, Kimberly-Clark, Procter & Gamble, and Colgate-Palmolive (and the list goes on and on; you can check it out here: Barchart.com.
And while the Large Cap Growth Index (largely made up of Technology stocks) has been doing a great job of not re-testing the February lows, the Large Cap Value Index (including companies previously mentioned) hasn’t held up as well. Keep in mind that the performance of the S&P 5001 is roughly the mid-point between these two (see the chart below).
Our V32 Indicator went to “Protection” mode for the second quarter of 2018. What this means for us, is that we’ll be spending 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 – while the shorter-term bond areas are holding up well, the more mid-term and longer-term are again having a tough time. We find it promising that we’re starting to see more “news” about bond risk getting talked about in mainstream media (something we’ve been saying for awhile now). The general feeling is that bonds in the long-term will likely be riskier than they have been in decades. This is particularly significant because an aging population, which has traditionally been told to move more money into bonds post-retirement, could potentially be in danger. If allocations are moved too far to the bond-side (much like target-date allocations suggest), unexpected losses could become a reality.
We’ve been through choppy markets before, and while they are not fun, they are not fatal. This is because, as active managers, we have a plan on how to steer through these choppy waters. We don’t have to guess what the next wave may bring, but remain steady at the helm. Shadowridge is on deck and ready to stem the tide.
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.