Monthly Outlook: October 2017
When everything is working and you’re meeting your goals, you’ve just got to keep on keepin’ on. Markets – almost all of them – just keep trending higher and making us all a lot of money. Nothing seems to scare investors away. Talking heads have ample predictions about what will derail this party, but they’ve all been wrong so far (they’ll say they’re just early). We have political discord, sky-high valuations, missile launches from North Korea, less accommodative central banks, and on and on. All of this is known by investors and already priced in to the market. So far, it seems like they just don’t care! More likely, investors do care but they don’t see anything that will change their growth outlook. Rallies often end when something unforeseen occurs – a black swan event, if you will. And that’s why predictions are usually futile. You’d have to see something that no one else sees and that’s hard in a world of 24/7 news and internet transparency. Given this reality, our iFolios strategy does not require predictions and guessing. We just follow the price trend of each index fund holding and hold on as long as it’s trending higher. That’s where we are today as we move into October. With all major asset classes trending higher, we remain quite fully invested for growth. It’s working so let’s enjoy the gains.
Let’s take a look at the numbers for last month. For September, bonds (Barclays Aggregate) were off a bit, sagging -0.47%. Janet Yellen announced that the Fed would start unwinding their asset purchase program in October, albeit very slowly. Plus, they (the Federal Reserve) hinted that they’re likely to raise interest rates a bit one more time this year. U.S. stocks (Russell 3000) had another good month, advancing +2.47%. Financial and Energy sectors did well while Consumer and Healthcare sectors lagged. International stocks (FTSE All-world ex-USA) were up a solid +1.83%, with Europe outperforming Asia and emerging markets.
Trends Remain Up
You may have noticed we talk a lot about trends. Specifically, we focus on price trends and their cross-overs from up to down, or down to up. Because it’s such an integral part of our iFolios strategy, it’s critical that our investors understand this idea. For each of the index funds that we’re invested in, we watch its daily price and its long term moving average trend-line. Typically, we use the 200-day moving average as our trend-line. This is simply the average of the past 200 days’ closing price. As the price moves each day, so does the 200-day moving average (slightly). As the daily price moves higher, so will the trend-line. Here’s the important part: as long as the daily price remains above the trend-line, we say that holding is in an up-trend and should be held for growth. The trend-line sort of acts like a “line in the sand” and is our trigger for action. It serves to limit our risk. For example, today the price of the S&P500 is 5% above its trend-line, which is where we would intend to sell. So even if the S&P500 goes down 30%, our sell signal kicks in at the trend-line or down 5%. Although unused lately, this single facet of our iFolios strategy is probably the most valuable thing we can do for you over time.
Stay Global my Friend
We have long been advocates of global investing. One reason is that good growth companies and investments can be found anywhere in the world and we don’t want to limit our opportunities to just the U.S. Who is the best car company in the world? Ford? Mercedes? Toyota? That’s U.S., Germany, and Japan. But perhaps the biggest reason to invest globally is because of fluctuations in global currencies. As Americans, we always price everything in dollars, without really thinking about it. But when we buy any foreign stock or bond, we get the change in price PLUS the change in currency. For the past 8 years, the $US dollar has been rising vs. foreign currencies. That helps U.S. stocks and hurts international stocks (from our U.S. perspective). But in April of this year, the trend changed and now the $US dollar is declining against foreign currencies. This shift tends to help foreign stocks and bonds and is why we’re invested globally, with about 57% US and 43% international. You can count on us to constantly monitor trends and invest accordingly- for growth and protection.