April 2016 Portfolio Update

What a difference a couple weeks makes! Shortly after my last update, our allocation began to gain ground back since it appeared the economy was growing again. Bank stocks took a lead role, the Tech sector surged as companies posted profits, and interest rates started to move back up.

At the end of last quarter, we were trailing the tech-focused Nasdaq 100, which is similar to our tech- heavy portfolios. Today, net of fees, the higher risk portfolios are now outperforming the Nasdaq. We are starting to gain ground back against the other major indexes, as well as portfolios that I benchmark against.

Portfolio Shield™ Update

I’m very excited about Portfolio Shield™ and the benefits it will bring to the portfolios. Over the next few weeks, I will send you some short videos to further explain how Portfolio Shield™ works. I’ll also share data from my test portfolio so you can see firsthand how well it works.

Economic Update

Recent economic data continues to be mediocre, but it is strong enough to stave off any thoughts of a full blown recession. The data continues to support that it is likely the United States will lead the world out of this downturn.

Much of what we see are the aftereffects of several iterations of Quantitative Easing. It’s like a hangover from all of the credit expansion from years past. Consumers are still deleveraging and working to pay off debt. As debts are retired, it will most likely spur an increase in spending. Right now, Wall Street economists and money managers alike are wondering when consumers will start spending again. When we do, it very well may have a ripple effect on global economies.

If you are wondering why retailers are having multiple clearance sales, it’s simply to clear out their inventory. Retailers are holding large amounts of inventory they are desperate to unload. Wholesale and producer inventories are rather low because retailers are not placing large orders. As retail inventories decrease, retailers will begin to order new inventory. Wholesalers are thin on inventory, which means they will go to their producers, many of which are overseas, to restock their shelves. This cycle is exactly how I believe the global economy stabilizes and grows.

As far as interest rates go, the current global economic malaise has put the Fed in check. I thought they might resume increasing rates mid-year. I now believe it increasingly likely that further rate hikes will be delayed until later in the year. The Fed’s hesitation, coupled with the global stock market slump, is causing a great deal of volatility in the bond market. Once there is some appearance of global economic stability, I still believe long-term interest rates will increase fairly rapidly.

Market Update

I still remain optimistic about the equity market. However, I anticipate a fair amount of volatility over the next few months. I expected better economic data to come out in April, which would be a driver for stocks. However, this hasn’t happened yet. I believe the shift is coming soon. With the unemployment rate at historical lows, I think it’s only a matter of time before consumers have deleveraged and start spending again. I anticipate that trend will begin to happen in the latter half of 2016.

Portfolio Update

As I mentioned earlier, the allocation is starting to gain back ground. The Banking sector has begun to outperform, which is a strong leading indicator. The Tech sector, and more specifically the Internet subsector the portfolios are allocated to, is one of the few sectors that posted strong profits last quarter. The Biotech sector is still lagging. Based on the technical indicators, the Biotechnology sector has the greatest amount of upside potential of all sectors.

International equities have rebounded, but similar to U.S. equities, they have started to reach stall speed. Emerging Markets have begun to rebound on a weakening dollar, but they still have a long way to go before they return to even.

The bond allocation continues to be well tuned for a rising interest rate market. As I mentioned in our last update, there could be some short-term risks for the hedged position if bonds convert back to their moving averages, which happened last week. Based on the technical indicators there is still a slight upward trend in long-term interest rates. For the moment, the portfolios will remain allocated towards hedged bond funds and low duration bond funds.

TD Ameritrade Transition Update

Packets will be going out through the month of May. I plan to personally reach out to each client so that I can answer any questions you may have.

Thank you for the opportunity and trust you place in me to manage your money. I appreciate having you as my client and for all of the referrals! If you have any questions, please feel free to call or e-mail my office.