Well it is that time of year, where the markets can get volatile in the blink of an eye. While the North Korea situation is a big deal in the news right now, it is likely just a lot of political rhetoric. (*reference Washington Post article here: www.washingtonpost.com/) As of right now, we’re not expecting to see much more than that…talk. Much more important to the stock market is if companies are making money – which, at the current moment, they seem to be doing.
What we did/are doing in our strategies:
This week, small and mid-cap companies got hit the hardest. As of July 31st, we had completely removed them from our allocations. Instead, we remain focused on the Large Cap Growth area (mostly technology companies). We believe that this area has been by far the strongest sector of the market this year. Our core equity portfolio, Advance-Protect (which has the option to be invested at 100% equities), has been invested at 80% equities / 20% bonds for several months now – a slightly protective stance which means we were prepared for a move like this and didn’t experience the full move down this week.
There are two market metrics that we are watching closely right now:
The NYSE Advance-Decline line (see chart below). So far it is holding its mid-term trend line, but if it crosses and closes below this line, we will be looking at some light hedging strategies to help protect from further downside.
The VIX / Volatility Index (see chart below). This year, we’ve seen several spikes above 15, only to have them quickly calm down. When the VIX goes down, to us that usually suggests that investor fear is subsiding and the market can resume moving up.
Our outlook for the 3rd quarter of 2017 remains positive. If the North Korea situation escalates, we have a plan to protect your portfolio. But for now, we’re just watching and waiting.
We hope this Market Commentary EXTRA was helpful to you. Please call or email us if you have any questions!