The market continues to experience volatility around the new record high. Again, this is to be expected as this is a very psychologically important level so we shouldn't expect the market to blow through this and never look back. There is still a lot of background "noise" in the markets. Last week's jobs numbers were disappointing, we have had some weaker economic numbers, Cyprus, etc. None of this looks like it can change the fact that money has nowhere else to go but stocks at this point, but the economic numbers bear watching. If the economy stalls then all bets are off for stocks.
More troubling right now is the divergence we are seeing between large stocks vs. small and mid cap stocks. Below is the performance of ETFs that track the S&P 500 along with ETFs that track small and mid cap stock indices. We are only 10 days into the month and this could always reverse but the divergence at this point is striking. In the beginning or middle of a true rally we would expect "risk on" assets like mid caps and small caps to outperform larger stocks. It is only towards the end of a rally that this relationship would be expected to reverse as investors look to reduce risk in their portfolios. This is something that we will be watching very closely.
|
Asset Class |
Proxy |
Month To Date Return |
|
S&P 500 |
iShares S&P 500 (IVV) |
0.10% |
|
Mid Cap Stocks |
iShares Mid Cap Index (IJH) |
-1.73% |
|
Small Cap Stocks |
iShares Russell 2000 (IWM) |
-2.34% |
Equity Markets
Our momentum indicators are still extremely bullish on the stock market. Our positive reading on stocks does not mean that the market is guaranteed to rise from here. There are still many risks on the horizon (Poor corporate earnings, problems in Europe, slowing economy, partisan bickering in Washington, etc) that could cause a selloff. However, our research suggests that when our momentum indicators are bullish the rewards of being invested outweigh the risks.
In the US we have shifted from small cap stocks into mid cap stocks as they are showing the strongest momentum. This week we also added to positions in the S&P 500. Globally, we continue to favor the US over international stocks. Shorter term the market is looking slightly overbought.
Equity Matrix
|
Time Frame |
Market Condition |
TTM Positioning |
|
Short Term |
Slightly Overbought |
25% Cash 75% Small Cap & S&P 500 |
|
Intermediate Term |
Uptrend |
Fully Invested- S&P 500 & Mid Cap |
Fixed Income Markets
Our momentum indicators still show that most areas of the bond market are weakening. We still see momentum in high yield bonds and we have added positions in preferred shares, local currency denominated emerging market debt, and international TIPs
We continue to hold our counter trend position in long term Treasuries. We understand that over the intermediate and long term Treasuries are probably the worst bet you can make, but over the short term they are looking oversold and have provided protection during selloffs.
Fixed Income Matrix
|
Time Frame |
Market Condition |
TTM Positioning |
|
Short Term |
Oversold |
100% Invested in Treasury Bonds |
|
Intermediate Term |
Most markets in a downtrend |
High Yield, Preferred Shares, Local EM, Intl TIPs |
Top Holdings
1. S&P 500
2. Mid Cap Stocks
3. Cash
4. Small Cap Stocks
401k Advice
Below is our recommended allocation for 401k plans held outside of TWM:
|
Risk Tolerance* |
||||
|
Asset Type |
Asset Class |
Conservative |
Moderate |
Aggressive |
|
Stock |
S&P 500 |
20% |
33.3% |
|
|
Stock |
Mid Cap Stock** |
20% |
33.3% |
|
|
Stock |
Small Cap Stock** |
20% |
33.3% |
|
|
Fixed Income |
High Yield Bond*** |
33% |
13% |
|
|
Cash |
Cash |
67% |
27% |
|
|
100% |
100% |
100% |
||
|
* This should be based on the amount of risk/return you are looking for on this |
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|
block of money. |
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|
**If you do not have Mid Cap and/or Small Cap funds available that part of the |
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|
allocation can go into the S&P 500. |
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|
***If you do not have multiple bond funds then fixed income allocation can go into an |
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|
investment grade bond fund and/or multi-sector bond fund. |
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Tuttle Tactical Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Tuttle Tactical Management, LLC. It is published solely for informational purposes and is not to be construed as a solicitation nor does it constitute advice, investment or otherwise. To the extent that a reader has questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing. A copy of our written disclosure statement regarding our advisory services and fees is available upon request. Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Past performance is no guarantee of future returns.
Certified Financial Planner® Board of Standards, Inc. owns the certification marks CFP®, Certified Financial Planner® and federally registered CFP® in the U.S., which it awards to individuals who successfully complete the CFP® Board's initial and ongoing certification requirements.
© Tuttle Tactical Management
