Wealth Protect Status Update: August 2017
This is the monthly WealthProtect System* status update and includes the probability (Low, Mid, High) of a change in status within the next two months. Below is a commentary on actions taken this month as well as changes in overall asset allocation.
System Commentary
There were no trades in our system this month. US large cap equities continue to show strength, as do foreign equities. US small company stocks, however, have been pretty much flat since the turn of the year and this has brought them closer to exiting. Commodities, on the other hand, have shown renewed strength.
Market Commentary
As I write this on the 10th in the midst of the North Korean situation, the market is having one of its few serious down days this year. This has been, however, quite a Teflon market. Nothing so far has seemed to bother it. Many seem to think this bull market is strong. Let's take an honest look at the bull market. As my friends at Hays Advisory** point out, a bull market, like a good table, has four legs-the trend, valuation, psychology, and monetary conditions. How solid are the legs? The first, the trend, is in fine shape as far as the major averages go. This leg is strong. The second, valuation, as I have mentioned numerous times, is at extremes not seen since 2000. In fact, most measures of valuation imply that it will take a drop of at least 48% to bring the market close to fair value! So, this leg is gone. Now, valuation does not tell you when a bull market will end. Valuation tells you how much capacity there is to the downside once a bear market begins. The third leg is psychology. Rarely have I seen such a complacent market. The S&P 500 hasn't even had a 5% drop in over a year--the longest period since the early 1990s. Add to that a host of other measures, including record-high margin debt, and it is difficult to escape the conclusion that psychology is bearish at this point. This leg also appears to be gone. The final leg is monetary conditions. Most bull markets end when monetary conditions sour. This leg is still intact, but is wobbly. Close observers of the yield curve will have noticed a flattening. While short-term interest rates are certainly still low, their trajectory from the Federal Reserve is on the rise.
Therefore, we have a table with one strong leg, one wobbly, and two that are missing. A two-legged table can still stand, but it is shaky and it won't take much to topple it over. This is a good time to check your asset allocation and to make sure the amount you have exposed to stocks is inside your comfort zone. Give us a call if we can help.
*The Armstrong Wealth Management Group WealthProtect System is an investment risk control system designed (but not guaranteed) to limit significant losses in major bear markets (excess of 30% loss from market peak to market trough). It is NOT designed to prevent normal market losses (under 20%). No strategy can assure a profit or protect from a loss. Occasional false signals can reduce returns.
**Visit Hays Advisory at www.haysadvisory.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Stock investing involves risk including loss of principal. The prices of small and mid-cap stocks are generally more volatile than large cap stocks. All indices are unmanaged and may not be invested into directly.
International and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
Investing is Real Estate Investment Trusts (REITs) involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.
The fast price swings in commodities will result in significant volatility in an investor's holdings.
All performance referenced is historical and is no guarantee of future results.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Hays Advisory is not affiliated with LPL Financial or Armstrong Wealth Management Group.
