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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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More of the Same – Up, Up!

Monthly Outlook: June 2017 Maybe we should just turn off the news since markets just don’t seem to care about any of it. No matter what happens, or may happen, markets seem to float a little higher each month. May was yet another positive month for gains so yes, we’ll take it. U.S. stocks (Russell 3000) gained another 1.0% in May while international stocks (FTSE All‐world ex‐USA) added an impressive 3.4%, mostly from European stocks. Bonds did their part, providing stability and modest gains, adding 0.7% total return. Just like last month, we remain heavily invested with little cash reserves in light of the continued uptrends. If we ever get a pullback in stocks of say, 3% to 5%, we’d use that opportunity to put the little bit of cash we do have into more U.S. stocks. But for now, we’re very well invested and capturing the growth that these markets are giving us. As we move into summer, we’ll stay invested but very watchful for any trend changes. Beneath the Headlines The major indexes, like the Dow Jones Industrial Average, S&P500, or NASDAQ, make headlines every day as barometers of “the market.” That’s understandable, but they really don’t tell

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Markets Grind Higher

Monthly Outlook: May 2017 April was just more of the same – and that’s a good thing. Global political news dominates the airwaves and media; meanwhile global stock markets just grind higher. U.S. stocks (Russell 3000) gained another 1.0% in April while international stocks (FTSE All‐ world ex‐USA) added another 2.1%. Bonds, too, contributed to performance with a 0.8% total return. We remain heavily invested with little cash reserves in light of the continued uptrends. There are always areas of concern but we need to “make hay” while we have the opportunity. We’re always watchful for any changes, as we discuss below, but for now markets are providing the growth we want. Global Equity Investing Over the past 8 years U.S. equities have outperformed non‐U.S. or international equities. Some of that has to do with relative economic stability, the strength of the U.S. dollar, and better growth prospects. It’s tempting to some investors to therefore over‐weight U.S. investments and chase performance. But we think that would be a mistake. The U.S. only comprises about 48% of the world’s stock market value. Ignoring international stocks means you’d be missing out on a lot of great global companies. More importantly, a trend

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On Track for More Growth

Monthly Outlook: April 2017 It was a very good first quarter with solid gains coming from the global equity markets. U.S. stocks (Russell 3000) gained 5.6% though they stalled in March with a 0.1% gain. International stocks (MSCI EAFE) were the star of the quarter with a gain of 7.8%. On the other hand, stability assets (bonds) did their job to reduce volatility but acted as an anchor to diversified portfolio returns. The Barclays Aggregate bond index was only up 0.7% for the quarter. Lastly, commodities lost 3.0% and REITs gained a modest 0.9%. We sold these two small positions in March as a result. All in all, we had a good quarter and captured some nice upside. Within each portfolio’s equity allocation, we are now almost fully invested because the trends remain “up.” Don’t fight the trend! We are optimistic these uptrends will continue for now and we expect to see more growth in the quarters ahead. It’s All About Expectations Investors should assess both current conditions and future expectations. Think about buying stock in company ABC. You’d want to look at past sales and earnings growth, management, and valuations based on actual historical data. If we look at

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State of the Union Markets

Monthly Outlook: March 2017 Equity markets have floated steadily higher since the U.S. presidential elections four months ago. While this has surprised about half of the people, it shouldn’t come as too big of a surprise that promises of tax cuts, de‐regulation, and fiscal stimulus are sweet music to investors’ ears. But as last night’s state of the union address made clear, there are precious few details to suggest that any of these promised changes will happen quickly. While the exuberance can continue without details, at some point investors are likely to pause and reconsider the facts. While a small pullback in stock prices is likely, we are far from any major sell signal or reversal of the current uptrend. That’s the state of the markets as we enter into March. February was another good month for us. Our growth assets provided above average returns. U.S. stocks (Russell 1000) gained a solid 3.8% and international stocks (FTSE All‐world ex USA) gained 1.2%. Commodities were flat as a group but REITs were 3.5% higher. Stability assets were solid, but boring. Intermediate term bonds (Barclays Aggregate) added just 0.6% for February. Depending on your allocation, you’ll have a mix of these growth

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