February 2018 Market Commentary EXTRA

Well, the market got interesting rather quickly.  With the S&P 5001 and other US stock market segments selling off at a rapid pace, we’ve found ourselves getting defensive to help protect our investors.  Here are some of the highlights of action that we’ve taken recently:

Our Enhanced Index Model went to 100% Money Market on Friday last week, missing Monday’s sell-off.

Our core equity model “Advance-Protect” went to a 20% protection mode, essentially reducing the model by one risk level.  For example, if you are Moderate Aggressive (generally 80/20 stock to bond ratio), this moved you to Moderate allocation (generally a 60/40 stock to bond ratio).  This step-down in risk applied to all investors who own that strategy.

Also in this model, our top sector holding was changed from Energy to Consumer Discretionary.  This is helping because the Energy sector appears to be the hardest hit, while in contrast, the Consumer Discretionary sector is holding up relatively well.

In our 403b models at Fidelity, similarly, all of our sector picks are holding up very well against the overall markets and our Large Cap Growth (V3) portion has also been the stronger side of the Value-Growth equation.

Our V32 Indicator still suggests being in Growth mode (specifically Large Cap Growth) for the rest of Q1 2018.  So, we don’t anticipate today’s selloff as being a signal for a sustained downturn.

 

One Year Ratio Chart of the S&P 500 and the 1-3 Month Treasury Bill Index with 5 and 55 Day EMA – StockCharts.com

 

The chart above is one we look at every day: The S&P 500 against Treasury Bills.  When the blue line drops below the red line, the upward trend may be ending. In 2008, this was negative much of the year.  So far this year, after the very positive month of January, the market had room for a correction without giving up its positive trend.

Interestingly, we find that many of these corrections tend to happen on these same set of days: Thursday and Friday are decisively down, and Monday is often the final follow-through before the markets bounce back (one what we’ve seen referred to as “turnaround Tuesday”).

If history is any indication, we believe the market may be back to “normal” again by the end of the week.  In any case, we wanted to let you know that we are aware of the situation and have been making adjustments to protect your investments.

Should you have any questions, simply reply to this email.  We’re here for you!

 

P.S. Aftermarket close, Tom McClellan tweeted “Somebody hit the ‘buy everything’ button at 3:05 PM ET. Stocks, gold, and bonds all spiked higher starting then.”


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.