“So far, so good” is surprisingly how we are faring in the 3rd quarter of this year. We continue to remain in a seasonally questionable time, but overall the S&P 5001 is still holding above its long-term moving averages (see chart below). And while we’ve seen a slight rotation from Large Cap Growth to Small Cap Growth (and now back) not too much has changed since we’ve started this year. This does not leave out the possibility of a small market correction in the next few weeks. In fact, we would welcome that as an opportunity to position more aggressively going into the year-end. We’ll see.
This week, the Federal Reserve raised rates again by .25% as they were generally expected to do. However, we still believe this helps push the US economy towards the next recession. The yield curve has not yet flattened (a historic recession signal), but we believe it gets closer and closer with each rate increase. The Fed’s outlook remains very positive on the economy (CNBC). And even with storm clouds ahead, it’s possible we could see another year of positive stock market returns.
Our core holdings are still in Large Cap Growth while our preferred sector focus has shifted from Technology to Health Care. The Health Care sector has two things going for it right now: relative strength vs. the market indexes and a lower valuation (P/E Ratio) compared to other sector leaders (John Murphy @ StockCharts.com).
While limited strength is found in the market right now, looking at the 200-day moving average can give you a longer-term view of the health of an index. Below, the chart of the S&P 5001 shows continued upward movement.
Two Year chart of the S&P 500 (SPY) with a 200 Day Moving Average – StockCharts.com2
Our V33 Indicator was in “Growth” mode for the third quarter of 2018. And while we are only a few days away from the next signal, we expect the V3 to signal continued growth through the end of the year.
Bonds – The Aggregate Bond index (AGG) has continued to decline since the end of last month, and for the year it is sitting right around -1.65% (ishares.com). Bank Loans, short-term corporate bonds, and money market funds have all been bright spots while the overall bond market has been rough this year. That being said, our core bond model has remained stronger than the bond index year to date.
Fall is finally in the air, with temps dipping below 70 for us here in Austin. As F. Scott Fitzgerald said: “Life starts all over again when it gets crisp in the fall.” We hope you are enjoying the change of seasons!