Portfolio Shield – December 2022

Last month Portfolio Shield™ removed its bond hedge and Jeff and I both agreed to remove the additional downside hedging on the equity funds to allow the strategy to run with the Bulls.

At the same time, we implemented an additional momentum overlay on the bond allocation which added a position in high-yield bonds.

We were pleased to see that both stocks and bonds rallied in November and that all five of the Portfolio Shield™ models benefited from the changes in the allocation.

Jeff and I believe the most likely path is a continued rally in stocks and longer-term bonds over the next several months, especially should the Fed slow the pace of rate hikes.

Portfolio Shield™ is positioned to take advantage of a melt-up in stocks and a decline in long-term Treasury yields.

Our view of higher stock and bond prices is consistent with the projections based on the Portfolio Shield™ algorithm for the months to come which is likely to remain unhedged.

Looking forward, our Chief Strategist Jeff Snider shares his outlook on the global economy.

Incoming macroeconomic data here and around the world has near-uniformly conformed to the scenarios staked out by curve inversions. Among the more compelling of the economic accounts, the October 2022 CPI in the US was consistent with, if not outright confirming, the market position that consumer price pressures are abating.

That along with indicated deterioration in the economy has – in a very short period of time – led to a much faster and more assertive change in the outlook of most policymakers, including Federal Reserve Chairman Jay Powell. The latter, in particular, at the last FOMC meeting had aggressively asserted more rate hikes were needed.

Since then, CPI estimates and more, his tone has softened noticeably (reminiscent of the similar U-turn he made in early 2019). As it has, market curves have shifted even more forcefully (almost historically so) toward inversions – the view rate hikes aren’t just ending, the Fed is speeding along with the economy (recession) toward what appears to be a substantial rate cutting program ahead (what, for stocks, seems like good news).

In that regard, nothing has really changed in the marketplace apart from what is now an extreme level of confidence in that outcome; which also means a high degree of conviction in economic and monetary conditions that would bring it about (the bad news).

There were very slight changes to the Portfolio Shield™ equity and bond allocations for December.

We will continue to run the additional momentum screen on the bond allocation each month and make adjustments based on its recommendations.

As a reminder, all strategies are rebalanced on the first trading day of each month and at that time, any new monies are invested according to the model strategy you are in.

For those who want to change between strategies, changes will occur at the next rebalance.

Zero balance accounts that have had a zero balance for six months or more will be closed and where applicable, the advisory agreement terminated.

There is only a 0.3% allocation to cash in each model. Due to a misreporting between Morningstar® and the ETF providers, the Asset Allocation box on the fact sheets may show a higher cash position than is actually in the model.

If you have any questions or would like to change which Portfolio Shield™ strategy you are invested in, please let me know.

The latest Morningstar® Investment Detail Reports for the Portfolio Shield™ family are available on the Portfolio Shield™ website.

Thank you for your continued trust in allowing us to manage your money with Portfolio Shield™.

Thank you,

Steven Van Metre, CFP®
Jeffrey Snider