Our Cash Indicator methodology acts as a plan in case of an emergency. This is analogous to the multiple safety systems in a modern automobile, which includes an airbag. Importantly, each of these systems work together to potentially help smooth the ride.
We manage risk within our strategic, long-term allocations based on diversification across equity, fixed income, and alternative assets and a focus on more attractive relative values.
We manage risk tactically over the short-term by investing across a broad array of themes and asset classes including cash. We can either invest opportunistically or defensively depending on the environment.
Cash Indicator: Markets are functioning properly, but we expect increased volatility.
December 31, 2024
Our proprietary Cash Indicator (CI) provides insight into the health of the market by monitoring the level of fear using equity and fixed income indicators. This warning system is designed to signal us to either a 25% or 50% cash position to potentially protect principle and provide liquidity to reinvest at lower and more attractive valuations.
The CI has elevated again but remains below historical norms. As a result, we think that investors should expect more equity market volatility ahead. Considering the positive economic backdrop, we view downside volatility as a buying opportunity.
Strategic View: Economic growth can support higher equity prices while high quality fixed income appears attractive.
Equity Valuations: Outside of the Magnificent 7, we are finding a broad range of attractively valued equities. These areas include the value style and quality as well as small caps and midcaps.
Equity Favorability: We expect the U.S., propelled by innovation and relatively strong fundamentals, to continue to lead global equity markets. We expect broader equity market participation going forward.
Fixed Income Valuations: At current interest rates, high quality fixed income looks very attractive while high yield is less attractive on a risk-reward basis.
Fixed Income Favorability: Our allocations are positioned to generate attractive current yield while protecting against large interest rate moves and the risk of credit deterioration. We expect the Federal Reserve to slowly reduce short-term interest rates further. We are finding attractive opportunities to lock in current income levels in the belly of the yield curve through investment grade fixed income instruments while long-term interest rates do not adequately compensate investors for the associated risks.
Tactical View: We favor quality and defensive equity, as well as investment grade intermediate fixed income.
Broad U.S. economic activity continues to increase at an impressive rate. In addition, business surveys, such as Purchasing Manager Indices (PMI), offer compelling reasons for further optimism. Lastly, personal income growth has emerged as a critical driver of economic momentum and has consistently outpaced inflation. As a result of these positive trends, we utilized the recent equity market volatility to further lean into areas of the U.S. equity market that we think can continue to lead, especially the consumer discretionary sector.
*areas that we are tactically emphasizing
Global Broad Outlook: We expect global economic growth to persist despite softening economic indicators.
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DISCLOSURES
Any forecasts, figures, opinions or investment techniques and strategies explained are Stringer Asset Management, LLC’s as of the date of publication. They are considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect to error or omission is accepted. They are subject to change without reference or notification. The views contained herein are not be taken as an advice or a recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support an investment decision. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested.
Past performance and yield may not be a reliable guide to future performance. Current performance may be higher or lower than the performance quoted.
Data is provided by various sources and prepared by Stringer Asset Management, LLC and has not been verified or audited by an independent accountant.
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