Market Commentary July 2016

Brexit, like it never even happened (at least in the markets). After an impressive two-day sell-off resulting from the decision of the UK to leave the European Union, the S&P 500 quickly rebounded and recovered the losses just nine days later (cnbc.com data). Either the decision to leave wasn’t as economically damaging as it was initially made out to be, or the market is going to hold off on its verdict until policy is actually enacted. Overall, it looks like we can put the Brexit issue away for another day.

And now, with the markets rebounding, the S&P 500 could get up to 2200 (another +1.5% from here). The NASDAQ also looks like it could continue upwards a little more from here – it is only 75 pts from revisiting an all-time high.

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While that sounds big and exciting, it is actually consistent with the low-growth theme that we believe we’re seeing long term (cnbc.com data). What does that mean for investors? Overall, if it has felt like the market has gone nowhere for months, that’s because it has. From July 20, 2015 to February 11, 2016, the S&P 500 was down 13.03% (FastTrack Data). That was nearly seven months of a slow grind down.

With the S&P500 finally breaking above its last high (hit in July of 2015), it seems that now the drawdown period has been broken. We’re not convinced that sentiment has changed enough to keep the markets moving up for an extended period of time, though – especially since sell-offs occur so quickly at the slightest bit of bad news (Brexit, Russia, China, etc.).

This environment can be pretty frustrating for investors. However, this is not a reason to give up on the markets or investing. As Jim Cramer loves to shout, “there’s always a bull market somewhere!”

The Bond market, much to the surprise of many, has been a great place to be this year. High Yield bonds have fared well, along with their municipal counterparts. So much for the perceived destruction of bonds due to rising interest rates (a theme of concern since last year). As always, our goal is to follow the trend, so as long as bonds are moving, we’ll do our best to tag along for the ride.

We’ve been so impressed with High Yield bonds that it led to a new strategy based on them and their movement. We’ve been rolling it out this month as a replacement to our Seasonal Trends strategy, which we will be discontinuing. We feel the new strategy gives a similar risk/reward profile while giving us more control and the ability to act faster should the need arise.

Our V3 indicator gave the outlook of “balance” for the 3rd Quarter. As that would imply, our expectation is not to lean too far in any one direction, but to maintain a sense of equilibrium going into the fall.

The VIX (Volatility Index) is surprisingly low (again), which we feel signals complacency of investors and traders. This has been something we keep a close eye on for signs of market volatility. For now, it appears to be relatively smooth sailing, but we remain vigilant because, as they say, “unexpected turbulence can occur at any moment.”

At Shadowridge, no matter what the markets do, we are actively adjusting as the landscape changes, to help you navigate through whatever challenges arise.

We hope this commentary has been helpful. If you have concerns, please reach out to us so that we can review your personal situation. We are honored to be your advisers, and appreciate the opportunity to answer your questions.

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