April 16, 2012: Markets At A Juncture
04/17/2012 0 comments
Re-balance Cycle Reminder
Based on our monthly re-balance calendar, the next re-balance time will be on next Monday, April 23, 2012. You can also find the re-balance calendar of 2012 on 'My Portfolios' page.
As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.
Markets At A Juncture
When it comes a time like this, the following observations can be useful:
- Seasonally, we are fast approaching 'Sell in May and Go Away' summer season. This stock market adage bears some truth about the turn of seasonality, a long well recognized phenomenon. See our STS Seasonal Timing Using DWC for its long term performance. Note we are not advocating investing solely based on seasonality, but a phenomenon with high probability can help one to properly adjust his/her portfolios back to a normal or even a defensive level.
- We are now in a period that is finally free of seasonal adjustment noises due to warm weather or the turn of a year. The non farm payroll employment data, initial jobless claim data and tax revenue will be of much better and clear quality now. At the moment, these data are pointing to some fresh concerns for the economy.
- European sovereign debt issues are coming back after the temporary effect of "kick the can down the road" policy adopted by the European Central Bank. As a matter of fact, Country stocks: Italy, Spain, Austria, France and the Netherlands stock markets (ETFs) all lost over 20% in the last 52 weeks, a standard bear market criterion. MSCI EAFE index (EFA) has been at the bottom of our major asset trend ranking table for more than two weeks. See major asset trend table on 360° Market Overview for more details.
- Major asset trend scores are in flux: at the moment, risk assets including gold, commodities, emerging market stocks and international developed country stocks are all ranked below total bond market index. The U.S. stocks and U.S. REITs are the two strongest risk assets. However, as we pointed out in our previous newsletter, situations can change faster this time (compared with in 2011) because of tougher year to year gain (last year this time, the stocks were already elevated around 1200-1300 levels for S&P 500) as well as the ongoing underperformance for so many risk assets mentioned above.
- Looking closely, many leading stocks such as Apple (AAPL) have started to experience a technical breakdown. Without a leadership, stocks tend to go lower.
- However, economies do carry certain recovery momentum, as seen by employment gains.
To summarize, currently, markets are at a possible juncture that either can turn into a downtrend or continue its uptrend. Evidences suggest the odds are in favor of a downside trend. However, as always, there is no guarantee.
For a strategic asset allocation portfolio, the best defense is to rebalance asset allocations to a pre-determined risk level that one feels comfortable, even at a double digit (such as 20%) loss. For atactical asset allocation portfolio, the best is to follow the markets at the moment.
Again, we would like to emphasize the high risk in stock markets. For new investors, we repeat that it is important to adopt gradual exposure to risk assets using strategies suh as dollar cost averaging.
Portfolio Reviews
We continue our regular reviews on various portfolios we provided. The following is the performance of the five strategic portfolios for the first 5 fortune 10 companies' 401Ks:
Portfolio Performance Comparison (as of 4/16/2012)
Portfolio/Fund Name | YTD Return | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
---|---|---|---|---|---|---|---|
Ford Motors 401K Strategic Asset Allocation Moderate | 5% | 3% | 24% | 15% | 143% | 4% | 23% |
CHEVRON EMPLOYEE SAVINGS INVESTMENT PLAN Strategic Asset Allocation Moderate | 4% | 1% | 6% | 12% | 110% | 4% | 25% |
Wal-Mart Profit Sharing and 401(k) Plan Strategic Asset Allocation Moderate | 5% | 2% | 23% | 16% | 179% | 5% | 43% |
The Bank of America 401(k) Plan Strategic Asset Allocation Moderate | 5% | 5% | 46% | 17% | 152% | 4% | 20% |
Hewlett Packard 401K Strategic Asset Allocation Moderate | 6% | 3% | 29% | 18% | 156% | 3% | 20% |
Again, we would like to emphasize the high risk in stock markets. For new investors, we repeat that it is important to adopt gradual exposure to risk assets using strategies suh as dollar cost averaging.
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