Summer Flip Flops

Monthly Outlook: August 2019  July ended with the first cut in interest rates since late 2007. The Federal Reserve cut the Fed Funds rate ¼% from 2.4% to 2.15% on concerns about global economic slowing, or in their words, “In light of the implications of global developments for the economic outlook…” We’ll discuss what this rate cut means a bit later. Markets were mostly flat in July, and definitely in summer mode with lighter volume and low volatility. The U.S. stock market gained +1.4%, the international stock market lost -1.8%, and bonds were flat, up +0.1%. The 10-year U.S. Treasury rate is now 2.02%, down from a recent peak of 3.2% in November, 2018. But the bigger and over-arching story is how stocks continue to flip-flop for the past year (and we’re not talking summer footwear). Let’s review the flip-flop trends of the S&P500: July 2018 to September 2018, +6% (flip). September 2018 to December 2018, -18% (flop). December 2018 to April 2019, +23% (flip). April 2018 to May 2019, -7% (flop). May 2019 to July 2019, +8% (flip). What’s next? Overall, the market is barely changed for the past year, stuck at 2,800 give or take 5%. But it’s

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Does 2019 Rhyme with 2000 & 2007?

Monthly Outlook: July 2019  They say history doesn’t repeat itself, but sometimes it rhymes. While 2019 has its own set of specifics, it’s looking a lot like 2000 and 2007 in many ways. We’ll get into that in detail, below, but suffice it to say that’s not a rhyme we really want to hear. 2000 and 2007 were major tops that each endured a year of volatility (similar to now) and then ended badly with a recession and significant bear market. Then, as now, no one wanted to see it, even though fundamental data was flashing warning lights.  Let’s review the numbers before we dig into comparisons to previous tops. Global stocks had a good month in June, gaining back what they lost in May. Remember that the S&P500 lost 20% from October to December, then gained it all back by May. Then it sunk again in May by 6% only to gain it back a month later by June.  Down, up, repeat. The market is exactly where it was nine months ago, but we’ve endured a roller coaster ride in the process. And it’s not much different than where it was a full 18 months ago when it first

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Rule #3 – Never Lose Big

Monthly Outlook: June 2019  A lot of experience and research supports our thesis that you can invest better than average if you’ll follow our three simple rules: Rule #1, costs matter so keep them low so more of the return flows through to you. Rule #2, stock picking to out-perform the market is really hard so focus, instead, on actively managing your allocation. And Rule #3, the most important of all, is Never Lose Big! Our iFolios strategy was carefully designed with these 3 Rules in mind. And today, with many markets tipping over to new downtrends, is the perfect time to review how we manage portfolios to try and never lose big. Before we do, let’s review the markets.  May proved to be a tough month for investors. The S&P500 lost 6.5% in May, giving back the 6.5% gain it had achieved from February through April.  In fact, the S&P500 is 2,750 today and it was 2,750 eighteen months ago. If you’re tempted to yell to the markets, “Do something!” you’re likely to get your wish. In reviewing 90 years of stock market history, only 6% of the years were flat (within 2% of 0). Most of the time

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Everything is Awesome?

Monthly Outlook: May 2019   You hear it everywhere – “Everything is Awesome!” GDP is up over 3%, earnings are up, employment is up. Stocks, bonds, gold, dollar, home prices – all up! Awesome! It’s a chicken in every pot! What could go wrong?  We’ll get to that. But first, let’s review April. U.S. stocks continued their 2019 rally with the Russell 3000 gaining another 3.9%. The strongest sectors are Technology and Utilities, an odd combination. Weakness is seen in Energy, Financials, and Healthcare. International stocks gained 2.7% with Europe and Emerging Markets doing better than Asia. Bonds marked time in April with flat results, down 0.1% for the month. Blending the markets for common allocations, the iFolios 75 benchmark was up 2.3% and the iFolios 85 benchmark was up 2.7%. We matched or slightly beat the benchmarks in May. So yeah, everything does seem awesome! We should also point out here that nearly every market that we follow is in an up-trend as we define it (rising and above its 200-day moving average). That’s our signal to remain fully invested and 100% positioned for growth. We’re doing that and have minimal cash balances in portfolios. What makes iFolios special is our

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Invest like a Boy Scout – Be Prepared

Monthly Outlook: April 2019  March was another decent month as U.S. stocks added 1.8% and international stocks gained about 1.0%. Bonds were the unlikely star of the month, adding 1.9%, after the U.S. Fed signaled that they were likely done raising rates after their meeting on March 20th. Putting it together, the balanced iFolios 75 benchmark rose 1.2% and we beat that slightly.     The focus should really be on longer term trends, not just month-to-date.  From March 2016 to October 2018, stock markets rose steadily.  The S&P500 rose from 2,025 to 2,750 over that 3½-year period, a nice gain of 35%.  Then the yo-yo started.  In mid-October 2018, the S&P500 dipped below 2,750, its 200-day m.a. trendline, for the first time in nearly four years.  That’s when we sold for protection.  Stocks dropped a stunning 15% for two months, crushing the Christmas spirit.  Then, as suddenly as they dropped, they rallied 17% back to 2,750 by Valentine’s Day, 2019.  In just four months, the S&P500 made a complete yo-yo as investors cycled through emotions of panic, relief, and mostly confusion.  When the yo-yo was over in Feb 2019 and the S&P500 crossed back above its 200-day m.a. trendline, we

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Yo-Yo Complete. Now What?

Monthly Outlook: March 2019  Last month we discussed the stock market “yo-yo,” a dramatic 4-month dip & rebound of about 15%. In February, stocks extended the rebound a bit more with another 2% gain to complete the full yo-yo cycle. The S&P500 is now back to where it was four months ago, but after a wild ride. In fact, the S&P500 is where it was a year ago, about 2,800. The market has gone nowhere in a year! I kid you not, look it up. That’s more than a little frustrating to investors who expect to make money every year. Looking back at 90 years of stock market history, we know that only 7 years were flat (+/-2%). And never was a flat year followed by another flat year. So, we have to ask, “Now what?”  History also tells us that stocks have been up 73% of the years and down 27% of the years. We’ll discuss, below, what the price trends, economic data, and valuations suggest is possible for the year ahead. Price Trends are Up Of all the indicators we use, price trends are the most important. After all, it’s the price that matters. All the other indicators

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Stocks Yo-Yo: Trend Still Down

Monthly Outlook: February 2019 Wow, what a great month for stocks!  Markets yo-yoed in December and January.  You may remember 2018 ended on an unhappy note with stocks dropping sharply in December.  U.S. stocks (S&P500) dropped 8.8% in December.  But then they snapped back 7.9% in January!  The same yo-yo pattern occurred in international stocks with the EAFE Index dropping 5.3% in December and snapping back 6.6% in January.  The news will highlight the recent strength but really stock markets are only back to where they were two months ago at best.  As always, we use our long-term trend indicator (using the 200-day moving average) to determine the overall trend of each market.  And unfortunately, nearly every stock market remains in a down-trend for now.  Sorry to be the bearer of that news.  Of course, the bounce in January puts most stock markets closer to their declining trend line, but we can’t call a trend reversal to “up” quite yet.  For that reason, we remain under-weighted most stock markets.  On a bright note, Emerging Markets did manage to turn up on the last day of January so we have added back our full allocation there.  Might a trade deal be

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2019 Forecast: Made for iFolios!

Monthly Outlook: January 2019  Happy New Year!  2018 was not a particularly good year for global stock markets so we’re happy to be moving forward.  International stocks started a new downtrend in May/June due to trade concerns and Brexit and then it rolled over to U.S. stock markets around mid-October.  The Grinch came to steal Christmas in December with the S&P500 falling 10% and international stocks losing 5%.  It was a weak ending to an already softening year.  The good news – that we’ll discuss below – is we’ve been selling stocks for the past six months and are avoiding the bulk of these losses.  First, let’s review 2018 market returns. U.S. stock markets lost 6.1% in 2018, but were flat right up to December 13th.  International stock markets fell 14.2% in 2018 and were more steadily down from start to finish.  Looking for slightly better news we turn to bonds.  Bonds (Barclays Aggregate Index) lost 0.2% for the year, and that includes interest.  The star of 2019 was cash (90-day T-Bills) with a 1.7% return.  So how did the typical portfolio or growth mutual fund fare in 2018?  Let’s look at a typical blended growth-portfolio benchmark comprised of 5%

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We’re in the 25% Zone

Monthly Outlook: December 2018  Happy holidays!  There are just 20 more trading days in 2018 and most of those will be low-volume as we get closer to year-end and holiday season.  A lot could happen in this last month but it’s a pretty good bet that we’ll end up about where we are now.  So, the question is, “Where are we?”  Well, we’re in the 25% zone. Looking at S&P500 returns back to 1928 (90 years of data!), we can see that the market has been up 75% of the years and down 25% of the years.  The average has been +9.6%/year.  Another way to look at the market is compared to its 200-day moving average (m.a.), or what we call the trendline.  The S&P500 has been above it about 75% of the months and below it 25% of the months.  As we said in last month’s Outlook, October was a pivot month where the S&P500 broke below its trendline for the first time in three years.  That puts the S&P500 back in a downtrend, or in the “25% Zone” (because it happens only 25% of the time).  The semi-good news is that, historically, downtrends have lasted between two and

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October was a Pivot

Monthly Outlook: November 2018  October was a pivot month.  The three-and-a-half-year uptrend is over (for now) and markets have turned to a new downtrend.  As a result, we’ve moved portfolios from growth to protection.  This is the core of our iFolios strategy and most likely why you chose us to manage your money.  During an uptrend, one should “buy the dips.”  But in a downtrend, one should “sell the rallies.”  Don’t get fooled by the pundits and talking heads.  Many of them are guessing about the future which is a difficult task and most of them will be wrong.  Our iFolios strategy simply requires us to read the signs and allocate accordingly.  Today, we read “stop signs” in many markets and so we’re very underweighted global stocks.  We don’t know – and no one else does either – how long or how far this downtrend will go.  We could pontificate about possibilities, but that would be guessing and we won’t do it.  Until we get a “green light” or uptrend signal, we’ll stay in protection mode. Let’s take a look at the markets in more detail.  U.S. stocks dropped a sizeable -7.4% in October.  And most importantly, the market dropped

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POTUS, SCOTUS, and VOTUS

Monthly Outlook: October 2018 September felt like a busy month in the markets but when all was said and done, it was only a marginally positive month.  U.S. stocks gained a mere 0.19% with Energy and Healthcare sectors outperforming the broader market.  The tech-heavy NASDAQ actually lost a scant -0.28% in September.  International stocks were also lackluster, gaining just 0.44% for the month.  Europe is still bogged down with Brexit talks and trade tariffs are hurting Emerging Markets.  The big difference between U.S. and international stocks, and we can’t point this out enough, is that U.S. stocks continue to trend higher while international stocks are trending lower.  As a reminder, we define the trend as whether the index is above or below its 200-day moving average.  For this reason, we remain heavily invested in U.S. stocks for growth and under-weighted international stocks for protection from loss.  Lastly, bonds lost -0.55% in September on rising interest rate concerns.  We’ll discuss interest rates later in this Outlook. Focus on VOTUS From a purely market perspective (not political) it’s apparent that investors prefer lax regulations, low taxes, access to easy credit, and open markets.  Although the U.S. citizenry seems quite split politically, the

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What’s Working, What’s Not

Monthly Outlook: September 2018  Now that we’ve had our Labor Day holiday, we have to concede that summer is behind us.  On Wall Street that always signals a return to seriousness and focus.  Trade wars, corporate earnings, upcoming elections, global central bank actions, debt and valuations will all be studied for clues about year-end market movements.  But before we look ahead, let’s review the markets to see what’s working and what’s not. Global stocks are only up 3.6%, year-to-date (YTD) which is a little low for eight months.  But that doesn’t tell the whole story.  U.S. stocks are up 9.7%, YTD, while international stocks are down 3.4%, YTD.  Looking back at decades of history, we see that U.S. and international stocks are actually highly correlated, moving up and down together.  So, we have to wonder if U.S. stocks will join the international downtrend?  Or will international stocks rejoin the U.S. uptrend?  We’re going to find out over the next few months. Bonds are still down 1.2%, YTD, as the U.S. Federal Reserve (Fed) continues to ratchet up interest rates by ¼% every couple of months.  Analysts assume another ¼% hike is coming in September.  But again, the headline doesn’t tell

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