by | Jul 27, 2018 | Market Commentary | 0 comments


Usually, for us, July is the quietest time of the year.  But not this year.  We’ve been kept surprisingly busy with a lot of client referral – we can’t thank you enough!

Historically, the performance of the stock market in July is usually the bright spot of the summer months.  And so far this year, that has been true.  After the solid run-up in equity prices that we’ve seen so far in July, we are mindful that the bright spot can turn dim going into August and September (Source: Stock Trader’s Almanac).  Lately, we have been backing down our allocations a bit, with the goal of holding on to the gains we’ve made recently.

Last month we mentioned the Yield Curve and the potential for an “inversion” sometime this year.  We expect this data point to be one of the most important factors to watch in regards to if and when the stock market could be heading into a recession.  Stay tuned!

Something else we are keeping in mind is the current Shiller PE ratio of the S&P 5001 (check it out here).  The current ratio value is now the 2nd highest it has been since the late 1800s.  We believe that more and more factors are lining up to signal a potential recession.  And while that sounds scary, we feel it is much more important to embrace it as something that needs to happen.  A correction or even a recession can be a reset for any imbalances that exist in the financial world.  And there are ways to play it safe so that your investments do not feel the full effect.  …and that’s what we are here for!

In continuing the theme of looking at charts that appear overvalued, here is a twelve-year chart of the SPY (S&P 500 ETF) with a 12-month moving average (calculated based on the closing price of the last 12 months).  This is a variation of trend-following covered in Meb Faber’s book The Ivy Portfolio.  When the blue line is above the red at month-end, then odds favor being in the stock market.  Conversely, when the blue line closes the month below the red, then odds favor being out of the market. 2

Twelve Year Monthly view of the SPY with a Twelve Month Moving Average (iShares ETFs) –

Our V33 Indicator shifted back to “Growth” mode at the beginning of the third quarter of 2018.  While it did spend the second quarter in “protection” mode, the need for protection turned out to be less of an issue than expected.  That being said, it is always our preference to play it safe if something doesn’t seem right in the stock market or the current economic situation.

Bonds – The Aggregate Bond index (AGG) is still negative for the year, and that makes the “bond” sector a difficult place to park safe money.  However, there have been a few bright spots, such as in bank loans, short-term corporate bonds, and market funds.  We are fortunate to have these selective bright spots available to us even when markets (be it stocks or bonds) are having a difficult time.

We hope everyone is having a great summer (wow, has it been hot)!!  Stay cool out there!!

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 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.

3 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.