Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Monday, February 26, 2017. You can also find the re-balance calendar for 2017 on ‘Dashboard‘ page once you log in.

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.

Please note that we now list the next re-balance date on every portfolio page.

Trend Review

Market selloff continued last week. However how fast this selloff has been, by looking at closely trends in various market segments, we can conclude that

  • Stocks are still in an up trend
  • Bonds are in a downtrend broadly

Of course, such observation can change as time goes. For now, let’s review the trends.

Stock trend

The trend scores of major assets:


Description Symbol 1 Week 4 Weeks 52 Weeks Trend Score
Emerging Market Stks VWO -5.43% -5.84% 20.19% 4.23%
US Stocks VTI -5.0% -5.97% 14.85% 2.89%
International Developed Stks VEA -5.27% -6.71% 17.5% 2.3%
Gold GLD -1.28% -1.72% 6.1% 1.54%
International REITs RWX -4.57% -5.47% 6.64% -0.07%
Commodities DBC -5.06% -4.95% 0.5% -0.41%
Total US Bonds BND -0.44% -1.37% 1.09% -0.72%
US Equity REITs VNQ -3.8% -5.67% -5.81% -6.6%

Other than REITs and bonds, all other risk assets still have positive trend sores and are still above their 200 day moving averages. S&P 500 index reached so called 10% correction threshold intra day last Friday from its recent peak but so far has managed to rebound somewhat:

REITs are definitely under pressure, as other rate sensitive segments such as utilities: 

US Sectors Trend


Description Symbol 1 Week 4 Weeks  Trend Score
Consumer Discretionary XLY -4.51% -4.0% 6.63%
Technology XLK -4.44% -4.91% 5.76%
Financial XLF -5.72% -5.3% 5.36%
Industries XLI -5.36% -7.93% 3.44%
Materials XLB -3.37% -7.84% 2.87%
Healthcare XLV -5.51% -5.44% 2.36%
Consumer Staples XLP -4.89% -5.19% -1.75%
Utilities XLU -2.65% -3.38% -4.82%
Energy XLE -7.99% -13.89% -5.04%
Telecom IYZ -6.34% -8.02% -10.09%

However, the cyclical sectors such as consumer discretionary, technology and financials are still the best performing sectors, indicating this correction so far is more like a normal one than a trend change. 

This is also true by looking at various trend scores in US styles: 

US Equity Style Trend


Description Symbol 1 Week 4 Weeks  52 Weeks Trend Score
Russell Largecap Growth IWF -4.89% -5.25% 22.46% 5.22%
Russell Midcap Growth IWP -4.95% -6.1% 16.37% 3.7%
Russell Smallcap Growth IWO -4.78% -6.43% 14.24% 3.06%
Russell Largecap Index IWB -5.06% -5.94% 14.68% 2.73%
Russell Midcap Indedx IWR -4.79% -6.59% 9.64% 1.22%
Russell Smallcap Index IWM -4.59% -7.2% 7.84% 0.96%
Russell Largecap Value IWD -5.24% -6.64% 7.13% 0.25%
Russell Midcap Value IWS -4.69% -7.12% 4.35% -0.78%
Russell Smallcap Value IWN -4.27% -7.92% 1.73% -1.1%

It’s a uniform score table: growth stocks outperform blend stocks while value stocks are the laggers. 

Global wise, stocks in all major countries have been down recently but most of them still exhibit positive trends.

See 360° Market Overview for all of the details of trend scores. 

Bond trend

However, bonds exhibit a pretty broad base downtrend in most segments: 

Fixed Income Assets Trend


Description Symbol 1 Week 4 Weeks  52 Weeks Trend Score
International Inflation Protected WIP -1.61% -0.29% 9.66% 3.03%
International Treasury BWX -1.2% -0.21% 10.03% 2.58%
High Yield Muni VWAHX 0.09% -0.83% 5.58% 0.95%
Interm Term Muni VWIUX 0.14% -0.83% 2.58% -0.04%
Short Term Treasury  SHY 0.13% -0.16% -0.09% -0.22%
US Total Bond BND -0.44% -1.37% 1.09% -0.72%
MBS Bond MBB -0.22% -1.7% 0.16% -1.0%
Long Term Credit LQD -1.17% -2.99% 0.61% -1.36%
Inflation Protected TIP -0.77% -1.66% -1.45% -1.39%
High Yield JNK -1.63% -3.2% -0.29% -1.55%
Emerging Mkt Bonds PCY -2.21% -4.2% 0.82% -2.05%
Intermediate Treasury IEF 0.0% -2.25% -1.09% -2.08%
20+ Year Treasury TLT -1.37% -5.28% 0.12% -3.29%

We want to point out that municipal bonds have outperformed Treasuries for quite some time now. This shows that municipal bonds are still in better demand by wealthy individuals even in the face of the recent tax reduction legislature. Furthermore, US TIPS (inflation protected securities) have not done well though the international inflation protected securities are doing better. We will discuss these securities in more details in a future newsletter. 

Regarding emerging market and foreign debts, we refer readers to an interesting study by AllianceBernstein: Why EM Debt Investors Don’t Worry About Rising US Rates. It shows that during Fed rate hike periods, emerging market debts often had positive returns. This is a welcome news as we need more fixed income assets that can cope with current rate hike cycle. 

Scenario analysis and what to do

From the above, we see that the recent stock correction is mostly induced by the fear of interest rate hike and their elevated valuation. So far, it’s been orderly and normal (other than what you might heard from financial news on so called leveraged volatility ETF/ETN debacle). However, at the moment, it’s still in the middle of the correction. Here are several possible scenarios: 

  • Interest rates continue to rise and stocks go through a much deeper correction. This is a likely scenario, considering the very high valuation and the overly extended rising period. We also refer readers to our last week’s newsletter to see what happened in 1987 stock crash. Again, a correction/downturn is a process with ups and downs and it takes time to unfold. 
  • Interest rates stabilizes and stocks continue to drop: that’s also possible but since a recession is not imminent, it’s less likely at this moment. Nevertheless, it’s a possibility. 
  • Interest rates stabilizes and stocks rebound and continue to rise. This is a likely scenario and that’s what most investors seem to hope. 
  • Other unforeseen scenarios that can derail economy and/or stocks. 

We have stated numerous times that we believe that it’s very hard to rely on prediction or forecast to manage investments. Our preferred strategies are two asset allocation strategies: Strategic Asset Allocation (SAA) and Tactical Asset Allocation(TAA) and we believe in adopting a conservative stance to plan one’s overall risk allocation (i.e. stock allocation). This is especially true in the current overvalued, rising rate environment that’s hostile to both stocks and bonds. 

Market Overview

Stock earnings continued to show positive growth: based on Factset, with 68% of S&P 500 companies reporting earnings for Q4 2017, the blended earnings growth is 14%, better than the expected 11% and better than last week’s 13.4%. Though this might show that a recession is not near, however, investors should be aware that stocks can retreat right after economy peaks as they are often in a  guessing/predictive nature. As always, stay the course and manage risk to a reasonable level. 

For more detailed asset trend scores, please refer to 360° Market Overview

Now that the Trump administration has been in the office for more than a year, the economy and financial markets are in general still in a good shape. Whether the economy will continue to benefit from the supposedly trickle down of the tax cut, the deregulation and the promised infrastructure spending remains to be seen.  On the other hand, stocks continued to ascend, regardless of the progress. Looking ahead, however, we remain convinced that markets will experience more volatilities at some point when reality finally sets in. 

In terms of investments, U.S. stock valuation is at a historically high level. It is thus not a good time to take excessive risk. However, we remain optimistic on U.S. economy in the long term and believe much better investment opportunities will arise in the future. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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