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Tweets & Tariffs

Monthly Outlook: June 2018  U.S. stocks continue to mark time in May, stuck in a sideways, range-bound channel.  The S&P500 has been stuck at 2,700, give or take 100 points, for the past six months.  If the economy is so good, as evidenced by rising corporate earnings and full employment, then why can’t the stock market continue to advance?  Could it be that the barrage of tweets (from many people) and the constant cross-talk of tariffs and trade wars is just too confusing?  Perhaps CEOs and investors, alike, are unable to commit new capital, frozen with indecision.  More on this later, but let’s first review the markets. U.S. stocks (S&P500) had a decent gain in May, adding 2.4%.  But this market remains stuck at about 2,700 these past six months and is presently at 2,705.  For the past 100 trading days (which is close to YTD), the S&P500 has closed above 2,700 on 52 days and below 2,700 on 48 days.  While it sounds like the market has been dead-on flat and boring for six months, it’s been anything but.  It’s been flat overall, but volatile day to day.  In 2017, the S&P500 had daily moves of greater than 1%

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Manage the Mix

Monthly Outlook: May 2018  Global stocks have now stalled for the past five months as investors digest conflicting inputs.  On the positive side, corporate earnings continue to move higher, but so do interest rates (a negative).  Consumer confidence and employment are high, but so are valuations.  And although the S&P500 is exactly where it was five months ago, there’s been a lot of volatility and conflict along the way.  History shows us that stocks don’t move sideways for long.  We expect resolution soon and for a sustainable trend to develop.  The question is “which direction?”  Will the 9-year uptrend continue or are we about to enter a correction?  It’s also possible that the answer is “both.”  Some asset classes could trend higher while others sink.  That’s why we’re always vigilant and managing the mix in our iFolios.  We’ll discuss that in more detail later, but let’s review the markets first. U.S. stocks (S&P500) gained a modest 0.5% in April but are down 0.5% for the YTD.  International stocks (FTSE All-world ex-USA) gained a similar 0.6% in April and are barely positive for the year, up 0.2%.  Bonds (Barclays Aggregate Bond Index) continue to suffer from interest rates that are creeping

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Wind, but No Storm

Monthly Outlook: April 2018  The first quarter of 2018 was sure volatile but, in the end, there was very little change to the broad market indexes.  By a narrowing margin, the trends remain up, which means we remain invested.  Just like Colorado springtime weather, we’ve seen a lot of wind (volatility), but so far, no storm (new down-trends).  With each burst of nerve-wracking market volatility, it’s natural to feel unsettled and tempted toward rash action.  But the key to investing success is to stay disciplined with a steady, calm, and proven strategy that focuses on long-term trends for guidance.  Our iFolios strategy is just such a strategy and will keep us invested appropriately. U.S. stocks (S&P500) lost just -1.0% in the 1st quarter of 2018, but it took the long way to get there!  The S&P500 first rose 7.4%, dropped 10.1%, rallied 8.2% again, and then sagged 5.2%.  The key is that it remains above its long-term trendline (200-day moving average) but only by 2.6% so it needs to hold here.  International stocks (FTSE All-world ex-USA) took an equally volatile path to finish down just -0.4% for the first quarter 2018.  It, too, remains narrowly positive, just 2.7% above its

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Volatility vs. Risk

Monthly Outlook: March 2018 In case you didn’t notice, February was a bit of a wild ride for stocks.  The S&P500 peaked on January 26th, dropped 11% by February 9th, then rebounded 8% by February 26th.  That’s a very unusual and large amount of volatility for one month!  We’ll talk more about volatility and risk later in this Outlook.  First, let’s review market returns for the month and year to date. U.S. stocks (S&P500) lost -3.7% in February but are still up +1.3% YTD.  The strongest sectors continue to be Technology, Financials, and Consumer Discretionary (mostly Amazon!).  International stocks (FTSE All-world ex-USA) also had a yo-yo February and fell -5.3% for the month, but are up slightly, +0.1%, for the YTD.  Outside the U.S., it’s the Emerging Markets that show the most strength.  Lastly, let’s look at bonds.  Bonds (Barclays Aggregate Bond Index), are down -2.2% YTD and that includes interest.  As interest rates rise, bond prices fall.  And interest rates are rising, as seen by the U.S. Treasury 10-year rate rising from 2.4% to 2.9% this year, already.  With rising rates, it’s prudent to move to shorter-term bonds and you may have seen us make those trades over the

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Stocks Pump, Bonds Slump

Monthly Outlook: February 2018 We’re off to a strong start in 2018!  In fact, it’s been one of the best Januarys for stocks in the past 20 years.  Stocks are on a persistent more-of-the-same run these past few years.  Bonds are a different story, however. U.S. stocks (S&P500) gained +5.5% in January, led primarily by the “FANG” stocks: Facebook, Amazon, Netflix, and Google.  International stocks (FTSE All-world ex-USA) did just as well, gaining +5.7%, with emerging markets outperforming.  Clearly, stocks continue to pump higher and the long-term uptrends remain intact.  Bonds (Barclays Aggregate Bond Index), on the other hand, slumped in January due to the rise in interest rates.  The U.S. 10-year treasury rate rose from 2.40% to 2.72% in January.  That 1/3rd % rate rise doesn’t seem like much, but it’s enough for bonds (Barclays Aggregate Bond Index) to lose 1.24%, total return including interest.  This slump in bonds is a new development that we’ll talk about later. Putting it all together, the benchmark for a 75/25 stock/bond portfolio was +3.3%, for a solid monthly gain. Bond Watch Stocks tend to steal the limelight because they are volatile and exciting.  They provide the bulk of growth (or loss!) to

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Party has Gone Long, but It’s Still On!

Monthly Outlook: January 2018 Happy New Year!  And who wouldn’t be in a great mood after the market returns we enjoyed in 2017?  Last year was the 9th year post-financial crisis, which makes this recovery one of the longest on record without a correction.  But as Newton showed us 300 years ago, an object in motion stays in motion until it meets an opposing force.  And so far, we just haven’t seen a big enough force to unsettle the party.  This “stays in motion” theme is, essentially, our outlook for 2018, which we’ll talk about later in this Outlook. Let’s review 2017 markets before we look ahead.  U.S. stocks (S&P500) gained +21.7% in 2017, led primarily by technology stocks.  International stocks (FTSE All-world ex-USA) did well, too, gaining 27.4%, with Europe, Asia, and Emerging all contributing evenly.  Bonds (Barclays Aggregate) did their part to add stability but only contributed a total return of 3.5%.  So, depending on your mix of growth assets (stocks) and stability assets (bonds), one would expect 2017 portfolio returns in the mid-teens.  Not bad.  Remember that at 14%, your money doubles in about five years. Valuations remain Sky High Enough about 2017 – most investors are

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Up, Up, and Away!

Monthly Outlook: December 2017 November ended on a high note with the Dow Jones Industrial Average spiking to a new high, piercing the 24,000 level.  Party hats all around!  It was 50 years ago that The 5th Dimension released “Up, Up and Away in My Beautiful Balloon.”  Maybe it should be re-released as this year’s market theme song.  Based on the amount of calls from clients, you’re all well aware of the exuberance and good returns!  But after the first 30 seconds of the call, comes the skeptical question, “Can it last?”  We’ll discuss this juxtaposition, below, but I’ll tell you now that you’d be justified to feel both delighted and nervous at the same time. Before we look forward, let’s review November.  U.S. stocks (S&P500) did well in November, gaining 3.0%.  This is the 11th straight monthly gain for U.S. stocks, which is very rare.  Much of the strength last month came from the Financials sector which will fare well under proposed tax changes and deregulation.  The normally strong Technology sector took a pause, however.  International stocks also contributed to returns with a 0.6% monthly gain.  Bonds traded in a narrow 0.6% band all month, ending just 0.1% down. 

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No Fall this Autumn

Monthly Outlook: November 2017 These markets just keep grinding higher!  The S&P500 has been up every month this year and, according to Deutsche Bank, this hasn’t happened for 90 years.  But wait, it gets better.  Every major asset class is in an uptrend: U.S. stocks, international stocks, bonds, and commodities.   It’s just one of those times where it’s good to be an investor and we’re capturing the gains. As Kai Rysdall of APM’s Marketplace would say, “Let’s do the numbers.”  For October, bonds (Barclays Aggregate) were flat, at -0.02% total return.  U.S. stocks (Russell 3000) gained +2.1%, with the Technology sector advancing a very strong +6.5%.  International stocks (FTSE All-world ex-USA) were also up, adding +1.9% for the month.   Japan was the star of the month for international stocks, gaining +5.2%.  Putting it all together, our most popular iFolios 75/25 benchmark was up 1.4% for the month, the tenth straight monthly gain for the year. UP-Trends are Intact Last month, I discussed how we define a trend based on whether an asset is above or below its long-term moving average (we like the 200-day m.a.).  This month, I’d like to consider how far the price is above the moving average. 

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Keep on Keeping’ On

Monthly Outlook: October 2017 When everything is working and you’re meeting your goals, you’ve just got to keep on keepin’ on. Markets – almost all of them – just keep trending higher and making us all a lot of money. Nothing seems to scare investors away. Talking heads have ample predictions about what will derail this party, but they’ve all been wrong so far (they’ll say they’re just early). We have political discord, sky-high valuations, missile launches from North Korea, less accommodative central banks, and on and on. All of this is known by investors and already priced in to the market. So far, it seems like they just don’t care! More likely, investors do care but they don’t see anything that will change their growth outlook. Rallies often end when something unforeseen occurs – a black swan event, if you will. And that’s why predictions are usually futile. You’d have to see something that no one else sees and that’s hard in a world of 24/7 news and internet transparency. Given this reality, our iFolios strategy does not require predictions and guessing. We just follow the price trend of each index fund holding and hold on as long as

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Still Invested, Still Watching Carefully

Monthly Outlook: September 2017 August was a typical summer month – not much going on in the markets. Of course, valuations remain sky-high for stocks but investors seem content to hang in there until something breaks. There are some concerns brewing (more on that later) but for now, we’re staying invested and watching very carefully. Rest assured that we look at every position every day so we won’t miss any trend changes. That’s what we do, so you don’t have to. Let’s take a look at the numbers for last month. For August, U.S. stocks (Russell 3000) were basically flat, up just 0.1%, international stocks (FTSE All-world ex-USA) inched higher by 0.6%, while bonds (Barclays Aggregate) did the best, up 0.8%. All markets (US stocks, int’l stocks, bonds) remain in an up-trend (above their 200-day moving average) so the right call is to stay invested for growth. And so we are, holding very little cash. Valuations Remain High In the long term, valuations matter a lot. In the short term, they mean almost nothing. That’s the paradox of investing. Do you focus on value or price? The price you pay for any asset is what ultimately matters considering the goal

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Too Many Calls for “The Top”

Monthly Outlook: August 2017 We’re starting to sound like a broken record: Last month was yet again another good month for markets and our iFolios’ returns. But that’s a tune we never get tired of hearing! Let’s get right to the numbers. For the month of July, U.S. stocks (Russell 3000) gained 1.9%, international stocks (FTSE All‐world ex‐USA) soared 3.3% higher, and bonds (Barclays Aggregate) plodded 0.4% higher. The trends continue to be “up” for all markets so we remain fully invested. We will point out that markets are fairly extended within their trends, however. For example, the S&P500 is 6.2% above its 200‐day moving average trend line and the NASDAQ is 9.5% above its 200‐day moving average trend line. What that tells us is that the up‐trends are strong and that maybe, just maybe, markets could pause or even pullback a bit over the near term. And by “a bit”, we mean 3% to 6%, let’s say. But until the long‐term uptrends are broken (and we’re a long way from that) we do not see significant downside risk. Many Gurus are Calling the Top You may have noticed lately that some pretty well‐ known gurus are cautioning investors that

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Moving Higher with Eyes Wide Open

Monthly Outlook: July 2017 June was yet another good month for market returns. U.S. stocks have been up‐trending since March 2016, some 15 months ago. Non‐U.S. or international stocks have been up‐trending since July 2016, almost a year ago. And bonds turned up recently in April. We’re sounding like a broken record when we say “up, up!” Let’s enjoy it while we’ve got it. For the month of June, U.S. stocks (Russell 3000) gained 1.1%, international stocks (FTSE All‐world ex‐USA) added 0.5%, and bonds (Barclays Aggregate) edged 0.1% higher. More importantly, all asset classes continue to up‐trend (more on what that means later). We remain fully invested, capturing gains, and watching carefully with eyes wide open. It makes for an enjoyable summer. Looking Directly at the Price If you really think about it, the point of making an investment is to buy something at one price and sell it later at a higher price. If it pays a dividend or interest along the way, that’s all the better as they add to the total return. Many investors scour data for clues and insights that they think will help them find underpriced opportunities. They look for a product improvement, a management

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