Monthly Outlook: October 2019 

September was a bit of a stall for global stocks, but at least the long-term trends remain up for most markets. U.S. stocks (S&P500) were up 1.7%, international stocks were up 2.8%, and bonds dipped 0.6%.  The 25% bond / 75% stock benchmark was up 1.3%. Not bad. Looking at slightly longer trends and market performance, however, we can see that global stock markets are at stall speed.  For the past twelve months, U.S stocks are only up 2.9%, international stocks are down 1.1%. Bonds, however, are up a healthy 10.3%. The 25% bond / 75% stock benchmark is only up 2.7% for the past twelve months (and it’s all from bonds!). That’s way below the 6.2% 10-year average benchmark return. What does it tell us when gold is the best performing asset class? In fact, gold is outperforming bonds, and bonds are outperforming global stocks. That’s an upside world and tells us investors are becoming more risk averse and seeking safety over growth.

Some Markets are Below Trendlines

Our goal, our reason for existing, is to help our clients grow their wealth and keep it. We do that by actively managing the mix of stocks, bonds, and cash over time. We let each market’s trend tell us whether we should be fully invested or under-invested. Today, up-trending asset classes include: Gold, Bonds of all maturities, and some stock markets. For example, US Large Growth, NASDAQ, and US Dividend stock markets are up-trending. But US Small stocks are teetering between up & down. In Europe, German and French stocks are teetering, while British, Irish, and Spanish stocks are down-trending. Emerging stocks, especially Chinese, are clearly down-trending. Using our iFolios trend-following strategy, therefore, we are fully invested in bonds, underweighted global stocks, and have added a small position to gold. Our iFolios 75 portfolios, for example, are invested a full 25% in bonds, 48% in global stocks (out of 75% target), 4% in gold, leaving 22% in cash (money market funds). That makes sense, given the trends, right? We’d love to be more bullish and fully invested in stocks for maximum growth but the trends just don’t support it. It’s interesting that some of the market favorites and performance leaders like Amazon, Netflix, Paypal, Cisco Systems and others have tipped over into new down-trends. The S&P500, itself, is just 5% above its 200-day moving average trendline, so we’re watching it (and all markets) very closely. As we move into October, either we’ll be buying more stock ETFs if trends turn back up, OR we’ll have to trim even more stock ETFs if more markets join the down-trends. There’s no sense guessing. We’ll stay disciplined and balance our dual goal of growth and protection. It’s a critical time for expert driving!

Drone Attacks, Impeachment, China Trade Deals

It’s tiring to be a news junkie, trust me. We have so many sources for content including internet, television, radio, print media, and more.  Sometimes it feels like the more you know, the less you know. I’m reminded of the many-handed economist who explains, “On the one hand, on the other hand, on the other hand…”  As money managers, we’re glued to the news for timely explanations about why markets are trending in one direction or another. But these days, it seems that even if you knew a news event in advance, you still couldn’t be sure how the market would interpret it. Is good news good or bad for a particular market? When the drone strike hit the Saudi Arabian oil fields last month, oil spiked 14% that day. But five days later it was back to where it started. Never mind! Trump tweets that a China trade deal is in the works. Stocks spike. Then he tweets never mind, the deal is off. Stocks stall. If unemployment ticks up is that good or bad? It’s bad for the newly laid off employee but maybe stock market investors like it because it’ll induce the Fed to cut interest rates faster. In addition to the news, we study valuations of stock markets. They used to matter. They probably still do, but only in the long-term. As we’ve discussed for months, stock valuations remain at peak levels, which should make investors more cautious. There are two points to make here. First, you don’t have to stress yourself out with all the news if you don’t want to; we’re doing that for you. And second, it’s more beneficial to follow the actual price trends of markets rather than guessing how the news might impact them. If an event is important enough, it will impact price trends and we’ll adjust the mix of our managed portfolios. Thank you for your trust and confidence.