We are pleased to see the equity allocation continues to perform well this year, particularly due to the continued strong performance of the S&P 500 that recently set a new all-time high.
Due to the weak performance of small cap stocks and a rally in long-term bonds, the strategy met one of two qualifications to hedge for the month of October. The second condition, a bull steepener in bonds which is evident by two-year Treasury yields falling faster than 10-year Treasury yields, was also met. Since both qualifications were met, the equity allocation across all models has been reduced to add a position in long-term bonds.
Looking forward, the equity allocation may remove its hedge for the month of November but otherwise will remain hedged through February 2025 based on the current data. In March 2025, the probabilities are high the strategy will remove its bond hedge.
Given all the factors, stocks can continue to rally as investors remain bullish on the economy, corporate share buybacks continue at a large pace, China implements its announced monetary and fiscal stimulus packages, and further interest rate cuts by the Federal Reserve are perceived to be bullish for stocks and the broad economy.
Momentum remains positive for both intermediate-term Treasuries and high-yield bonds.
Portfolio Shield™ reduced its equity position to SPY and QQQ and added a position in TLT for October.
Portfolio Shield™ is hedged against a decline in stocks.
We continue to evaluate the options outlined in last month’s update for the equity allocation to move Portfolio Shield™ more toward a true monthly rotational momentum strategy.
We are in the early stages of building a new model that could be used in a rotational equity model, which I am rather excited about.
Our programmer has been working on building an internal back-testing program to ensure that our goal of building a fully rotational model can be supported by testing against historical returns.
There were no changes to the Growth, Balanced, Income, and Conservative models for October.
Based on the current one-month momentum screen applied to the bond allocation, the momentum for both HYG and IEF was positive last month.
Portfolio Shield™ is positioned to take advantage of declining interest rates.
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.
If you have any questions or would like to change which Portfolio Shield™ strategy you are invested in, please let me know.
Thank you for your continued trust in allowing us to manage your money with Portfolio Shield™.
Thank you,
Steven Van Metre
