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, June 11, 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.
Rising Rates, Consumer Staples And Stock Index
Last week, long term interest rates continued to rise. 10 year Treasury bond’s yield is now above 3%, a much touted psychological level:
Short term interest rates also rose. The following table shows how T-Bill, money market fund and brokered CDs rates for 3 month and 1 year:
Security | Annualized Yield |
Prime Money Market (Vanguard Prime MM) | 1.88% |
3 Month Treasury Bill | 1.9% |
3 Month CD | 1.8% |
1 Year Treasury Bill | 2.36% |
1 Year CD | 2.25% |
We again observe that Treasury Bills’ yields are higher than their CD equivalent, somewhat unusual as T-Bills are considered to be the safest and thus should yield less.
All of these are thought to spell trouble for rate sensitive stocks.
Rate sensitive stocks in trouble
The following table compares S&P Consumer Staples sector ETF (XLP), Utility sector ETF (XLU), REITs (Vanguard REITs ETF VNQ) and S&P 500 (SPY). These sectors are the most sensitive to interest rates:
Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR | 10Yr Sharpe |
---|---|---|---|---|---|---|
XLP (Consumer Staples Select Sector SPDR ETF) | -11.9% | -7.0% | 2.8% | 6.2% | 8.6% | 0.6 |
XLU (Utilities Select Sector SPDR ETF) | -5.6% | -1.7% | 7.1% | 7.8% | 5.9% | 0.31 |
VNQ (Vanguard REIT ETF) | -7.7% | -1.0% | 3.0% | 3.9% | 5.6% | 0.16 |
SPY (SPDR S&P 500 ETF) | 2.5% | 17.2% | 10.7% | 12.5% | 8.9% | 0.43 |
XLP has the worst year to date return while all of the 3 rate sensitive sectors have negative YTD returns, compared with SPY’s 2.5%.
US Sectors Trend 05/17/2018
Description | Symbol | 13 Weeks | 26 Weeks | 52 Weeks | Trend Score |
---|---|---|---|---|---|
Consumer Staples | XLP | -8.97% | -7.59% | -6.45% | -5.06% |
Telecom | IYZ | -3.02% | -2.67% | -13.16% | -4.52% |
Utilities | XLU | 0.12% | -10.68% | -1.72% | -3.69% |
Healthcare | XLV | -1.45% | 2.87% | 13.0% | 3.29% |
Industries | XLI | -2.3% | 7.07% | 17.31% | 4.23% |
Materials | XLB | -0.76% | 3.95% | 17.6% | 4.61% |
Financial | XLF | -2.19% | 8.88% | 24.17% | 6.32% |
Consumer Discretionary | XLY | 0.3% | 13.8% | 20.34% | 7.13% |
Technology | XLK | 3.44% | 9.55% | 28.15% | 8.6% |
Energy | XLE | 16.91% | 19.77% | 21.89% | 13.09% |
The cyclical sectors like energy, technology and consumer discretionary are the top 3 performing sectors.
What’s worse, some of the well known names in consumer staples sector have lost more than 20% at some point of time this year, a level often used to define a bear market territory. The following chart shows the stock prices for Proctor & Gamble (PG), Philip Morris International (PM) and Kimberly-Clark (KMB):
On the other hand, small cap stocks, often considered to be more risk sensitive, are doing the best among all of the nine styles of stocks:
US Stock Style Trend as of 05/17/2018
Description | Symbol | 13 Weeks | 26 Weeks | 52 Weeks | Trend Score |
---|---|---|---|---|---|
Russell Smallcap Growth | IWO | 6.33% | 12.26% | 25.82% | 9.69% |
Russell Smallcap Index | IWM | 6.05% | 10.07% | 20.96% | 8.36% |
Russell Smallcap Value | IWN | 5.71% | 7.57% | 16.0% | 6.92% |
Russell Largecap Growth | IWF | 1.14% | 8.39% | 23.24% | 6.85% |
Russell Midcap Growth | IWP | 1.99% | 8.49% | 21.1% | 6.74% |
Russell Largecap Index | IWB | 0.28% | 6.22% | 17.16% | 4.98% |
Russell Midcap Indedx | IWR | 1.24% | 5.84% | 15.23% | 4.72% |
Russell Midcap Value | IWS | 0.58% | 3.71% | 10.64% | 3.12% |
Russell Largecap Value | IWD | -0.64% | 3.98% | 11.12% | 3.09% |
We offer two reasons for the above behavior:
- Consumer staples stocks are usually more predictable. They also offer higher yields. In a normal time, these stocks are viewed as defensive as their business is less disrupted in an economic downturn. However, in the current environment where interest rates are rising out of historically low, it’s much easier to deduce that these ‘defensive’ stocks are no longer competitive as bonds are offering competitively higher yields now. Furthermore, these companies all report some form of pricing pressure, indicating the upcoming profit margin decline.
- On the other hand, investors are reluctant to give up high growth stocks. They are pinning their hopes on the continuous high growth rate for other companies such as those in technology. They hope that both the recent tax cut and trade deals can probably help US companies to rake in more profits. Though large company stocks are at a very high valuation level, they now turn to smaller companies and hope they can continue to contribute to the growth in this bull market.
Granted, online shopping is now offering a way for consumers to be more price sensitive and less brand royal (the so called ‘Amazon effect’), it still doesn’t explain the magnitude of this sudden decline.
Regardless, the recent noticeable weakness in consumer staples stocks might be a precursor to a more serious decline in the future as investors are becoming less certain on the more stable and ‘certain’ companies. Instead, they now rely on hope on more speculative companies to deliver ever higher expected growth. In such an environment, when there is a first sign of earnings slowdown, these investors will be the first to jump ship by dumping stocks.
On a final note, in the long term, consumer staple stocks offer higher returns but with lower risk. In the following, we look at the returns of FDFAX (Fidelity Select Consumer Staples) that has one of the longest data (since 1987):
Ticker/Portfolio Name | 1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR | 15 Yr AR | 20 Yr AR |
---|---|---|---|---|---|---|
FDFAX (Fidelity Select Consumer Staples) | -16.7% | -1.9% | 2.9% | 6.4% | 9.5% | 7.2% |
VFINX (Vanguard 500 Index Investor) | 16.8% | 10.6% | 12.4% | 8.8% | 9.5% | 6.5% |
So consumer staples stocks not only offer higher returns but they have less volatility too. Now that their prices have come down a bit, these stocks are becoming more valuable.
Market Overview
More than 93% of S&P 500 companies had reported earnings for Q1 2018 on last Friday. The blended earnings growth is 24.5%, the highest since 2010. Analysts are all optimistic and expect double digit earnings growth rates for the next several quarters. Again, analyst’s expectation will always be high until some sign of slowdown materializes. Meanwhile, we are now getting closer to the summer season that’s traditionally more likely to be weak for stocks. We don’t have a future crystal ball to offer but what we can do is to manage our risk and stick to the investment plan.
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 about 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.
Enjoy Newsletter
How can we improve this newsletter? Please take our survey
–Thanks to those who have already contributed — we appreciate it.
Latest Articles
- May 14, 2018: Newsletter Collection Update
- May 7, 2018: Money Market Fund Taxonomy
- April 30, 2018: Momentum Investing Review
- April 23, 2018: Commodities In Current Environment
- April 16, 2018: Municipal Bonds As A Fixed Income Asset Class
- April 9, 2018: Exponential Or Compounding Nature In Investing
- April 2, 2018: Inside Of The Stock Chaos
- March 26, 2018: Total Return Bond Update
- March 19, 2018: Treasury Bills vs. Brokered CDs
- March 12, 2018: Defensive Conservative Portfolio Review
- March 5, 2018: Warren Buffett’s Advices
- February 26, 2018: Pros And Cons of Strategic And Tactical Portfolios In 2018
- February 12, 2018: Trend Review
- February 5, 2018: Market Selloff And Long Term Investing
- January 29, 2018: The New Addition To Our Total Return Bond Fund Candidates
- January 22, 2018: Where Are Bonds Heading?
- January 15, 2018: Tactical Portfolios Review
- January 8, 2018: Strategic Portfolios Review
- December 18, 2017: Record Highs And Risk
- December 11, 2017: Cash Return And Interest Rate Update
- December 4, 2017: Mutual Fund Star Ratings: Are They Useful?
- November 20, 2017: Thankful And Mindful
- November 13, 2017: Is This A Good Time For Retirees Or Would Be Retirees?
- November 6, 2017: Newsletter Collection Update
- October 30, 2017: Rising Interest Rates
- October 23, 2017: A Primer For Portfolios
- October 16, 2017: REITs As An Asset Class
- October 9, 2017: Conservative Portfolios Revisited
- October 2, 2017: The Role of Short Term Bond Funds
- September 25, 2017: Fees In Cash Investments
- September 18, 2017: Conservative Portfolios Review
- September 11, 2017: International Diversification Effect
- September 4, 2017: Invest And Speculate Revisited
- August 28, 2017: Total Return Bond Fund Portfolios: Where Do They Fit?
- August 21, 2017: Portfolio Performance: A Walk In The Past
- August 14, 2017: Fidelity Commission Free ETFs Update
- August 7, 2017: I Didn’t Learn Anything — Mistake vs. Temporary Underperformance
- July 31, 2017: Asset Classes And Fund Choices: A Primer
- July 24, 2017: Total Return Bond Fund Portfolios And Cash
- July 17, 2017: Long Term Stock Holding Periods For Retirement
- July 10, 2017: Half Year Asset Trend Review
- June 26, 2017: How To Beat The Best Balanced Allocation Fund
- June 19, 2017: Newsletter Collection Update
- June 12, 2017: A Mixed Bag Performance of Momentum Investing
- June 5, 2017: How To Start A New Portfolio
- May 29, 2017: Alternative Assets And Their Role In Portfolios
- May 22, 2017: Summer Seasonality And Portfolio Management
- May 15, 2017: Cash: Banking Or Investing?
- May 8, 2017: Holding Period of Long Term Timing Portfolios
- May 1, 2017: Debate on Risk vs. Volatility
- April 24, 2017: The Long Term Stock Market Timing Return Since 1871
- April 17, 2017: Risk vs. Volatility: Long Term Stock Market Returns
- April 10, 2017: Total Return Bond ETFs And Portfolios
- April 3, 2017: Quarter End Asset Trend Review
- March 27, 2017: Practical Consideration For IRAs And 401k Accounts
- March 20, 2017: Fund Fees: That’s (Still) Outrageous
- March 13, 2017: Long Term Stock Valuation Review
- March 6, 2017: Asset Classes for Retirement Investments
- February 27, 2017: Fidelity Total Bond Fund Review
- February 20, 2017: Long Term Stock Timing Based Portfolios And Their Roles
- February 13, 2017: Alternative Investment Portfolios Review
- February 6, 2017: Tax Free Municipal Bond Investments Review
- January 30, 2017: Brokerage Specific Conservative Portfolios
- January 23, 2017: Fixed Income Portfolio Review
- January 16, 2017: Long Term Trend Following Portfolio Review
- January 9, 2017: Tactical Asset Allocation Review
- January 3, 2017: Strategic Asset Allocation Review
- December 12, 2016: Enhanced Index Funds
- December 5, 2016: Review Of Broad Base Core Mutual Funds For Brokerages
- November 28, 2016: Core Index ETFs Review
- November 21, 2016: International Exposure Of U.S. Large Companies
- November 14, 2016: Asset Trends After The Election
- November 7, 2016: Rising Rate And Current Bond Trend
- October 31, 2016: Economy Power And Long Term Stock Returns
- October 24, 2016: Current Commodity Trend And Managed Futures
- October 17, 2016: Investment Mistakes And Good Or Bad Investment Strategies
- October 10, 2016: Momentum Investing Review
- October 3, 2016: Survey & Feedback
- September 26, 2016: Fixed Income Investing: Actively Managed Funds vs. Index Funds
- September 19, 2016: Stock Investing: Actively Managed Funds vs. Index Funds
- September 12, 2016: Newsletter Update
- September 5, 2016: Overvalued Markets And Long Term Timing Strategies
- August 29, 2016: Your 401K Finally Draws Attention
- August 22, 2016: Inflation Protected Securities TIPS For Current Overvalued Markets
- August 15, 2016: Risk On: Emerging Market Stocks And Small Cap Stocks
- August 8, 2016: Portfolio Construction Using Stock ETFs And Bond Mutual Funds
- August 1, 2016: Adding Value To Your Own Investments
- July 25, 2016: Tactical Asset Allocation Funds Review
- July 18, 2016: Strategic Asset Allocation & Lazy Portfolio Review
- July 11, 2016: Asset Trend Review
- June 27, 2016: Secular Cycles For Tactical And Strategic Investment Strategies
- June 20, 2016: A World of Debt
- June 13, 2016: Managed Futures For Portfolio Building
- June 6, 2016: Newsletter Summary
- May 30, 2016: Swensen Portfolio And Permanent Portfolios
- May 23, 2016: AAII Article And Some Web Changes
- May 16, 2016: The PIMCO (Dis)Advantages
- May 9, 2016: Boost Your Dull Summer Investments
- May 2, 2016: Low Cost Index Fund Investing
- April 25, 2016: Tax Free Municipal Bond Funds & Portfolios
- April 18, 2016: Asset Class Trend Review
- April 11, 2016: Construction of Sound And Conservative Portfolios
- March 28, 2016: Total Return Bond ETFs Review
- March 21, 2016: Small And Large Company Stock Performance In Different Economic Expansion Cycles
- March 14, 2016: Are Tactical And Timing Strategies Losing Steam?
- March 7, 2016: Defined Maturity Bond Fund Analysis
- February 29, 2016: Smart Strategic Asset Allocation Rebalance When Market Trend Changes
- February 22, 2016: Be Cash Smart
- February 15, 2016: Bond ETF Portfolios
- February 8, 2016: Newsletter Collection Update
- February 1, 2016: Total Return Bond Fund Portfolios In A Volatile Period
- January 25, 2016: Alternative Portfolios Review
- January 18, 2016: Strategic Asset Allocation: A Cautious Outlook
- January 11, 2016: Review Of Trend Following Tactical Asset Allocation
- January 4, 2016: What Worked And Didn’t In 2015
- December 21, 2015: Distressed Assets
- December 14, 2015: High Yield Bonds And Their Correlation With Stocks
- December 7, 2015: Diversification And Global Allocation
- November 30, 2015: Investors and Speculators Combined
- November 23, 2015: Active Stock Fund Performance Consistency
- November 16, 2015: Permanent, Risk Parity And Alternative Portfolios Review
- November 9, 2015: Broad Base Core Mutual Fund Review
- November 2, 2015: Broad Base Index Core ETFs Review
- October 26, 2015: Total Return Bond Fund Review
- October 19, 2015: Advanced Portfolio Review
- October 12, 2015: What About Commodities?
- October 5, 2015: Core Satellite Portfolios In A 401k Account
- September 28, 2015: Risk Managed Strategic Asset Allocation Portfolios Revisited
- September 21, 2015: Quest For The Best Investment Strategy
- September 14, 2015: Core Satellite Portfolios In Market Turmoil
- September 7, 2015: Market Rout Creates An Opportunity to Reposition Your Portfolios
- August 31, 2015: Review of Asset Allocation Funds and Portfolios
- August 24, 2015: Market Rout And Your Portfolios
- August 17, 2015: ETF or Mutual Fund Based Portfolios
- August 10, 2015: Updated Newsletter Collection
- August 3, 2015: Slippery Asset Trends
- July 27, 2015: Performance Dispersion Among Momentum Based Portfolios
- July 20, 2015: Global Balanced Portfolio Benchmarks
- July 13, 2015: Pain in Tactical Portfolios
- July 6, 2015: Fixed Income Total Return Bond Funds In Strategic Asset Allocation Portfolios
- June 29, 2015: Core ETF Commission Free Portfolios
- June 22, 2015: Secular Asset Trends
- June 15, 2015: Giving Up Bonds?
- June 1, 2015: Summer Blues?
- May 26, 2015: Cash, Bonds and Stocks In A Rising Rate Environment
- May 18, 2015: Portfolio Update
- May 11, 2015: Pain in Fixed Income?
- May 4, 2015: The Balanced Stock and Long Term Treasury Bond Portfolios
- April 27, 2015: Long Term Treasury Bond Behavior
- April 20, 2015: 529 College Savings Plan Rebalance Policy Change
- April 13, 2015: Total Return Bond Funds As Smart Cash
- April 6, 2015: The Low Return Environment
- March 30, 2015: Brokerage Specific Core Mutual Fund Portfolios 2
- March 23, 2015: Investment Arithmetic for Long Term Investments
- March 16, 2015: Brokerage Specific Core Mutual Fund Portfolios
- March 9, 2015: Newsletter Collection Update
- March 2, 2015: Total Return Bond ETFs
- February 23, 2015: Why Is Global Tactical Asset Allocation Not Popular?
- February 16, 2015: Where Are Permanent Portfolios Going?
- February 9, 2015: How Have Asset Allocation Funds Done?
- February 2, 2015: Risk Management Everywhere
- January 26, 2015: Composite Portfolios Review
- January 19, 2015: Fixed Income Investing Review
- January 12, 2015: How Does Trend Following Tactical Asset Allocation Strategy Deliver Returns
- January 5, 2015: When Forecast Fails
- December 22, 2014: Long Term Asset Returns: How Long Is Long?
- December 15, 2014: Beaten Down Assets
- December 8, 2014: Implementing Core Asset Portfolios In a Brokerage
- December 1, 2014: Two Key Issues of Investment Strategies
- November 24, 2014: Holiday Readings
- November 17, 2014: Retirement Spending Portfolios Update
- November 10, 2014: Fixed Income Or Cash
- November 3, 2014: Asset Trend Review
- October 27, 2014: Investment Loss, Mistakes And Market Cycles
- October 20, 2014: Strategic Portfolios With Managed Volatility
- October 13, 2014: Embrace Volatility
- October 6, 2014: Tips For 401k Open Enrollment
- September 29, 2014: What Can We Learn From Bill Gross’ Departure From PIMCO?
- September 22, 2014: Why Total Return Bond Funds?
- September 15, 2014: Equity And Total Return Bond Fund Composite Portfolios
- September 8, 2014: Momentum Based Portfolios Review
- September 1, 2014: Risk & Diversification: Mint.com Interview
- August 25, 2014: Remember Risk
- August 18, 2014: Consistency, The Most Important Edge In Investing: Tactical Case
- August 11, 2014: What To Do In Overvalued Stock Markets
- August 4, 2014: Is This The Peak Or Correction?
- July 28, 2014: Stock Musings
- July 21, 2014: Permanent Portfolios & Four Pillar Foundation Based Framework
- July 14, 2014: Composite Portfolios Review
- July 7, 2014: Portfolio Behavior During Market Corrections
- June 30, 2014: Half Year Brokerage ETF and Mutual Fund Portfolios Review
- June 23, 2014: Newsletter Collection Update
- June 16, 2014: There Are Always Lottery Winners
- June 9, 2014: The Arithmetic of Investment Mistakes
- June 2, 2014: Tips On Portfolio Rebalance
- May 26, 2014: In Praise Of Low Cost Core Asset Class Based Portfolios
- May 19, 2014: Consistency, The Most Important Edge In Investing: Strategic Case
- May 12, 2014: How To Handle An Elevated Overvalued Market
- May 5, 2014: Asset Allocation Funds Review
- April 28, 2014: Now The Economy Backs To The ‘Old Normal’, Should Our Investments Too?
- April 21, 2014: Total Return Bond Investing In The Current Market Environment