CMW MONTHLY MONEY PULSE™

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July 26, 2019
CMW MONTHLY MONEY PULSE™

As we write it occurs to us that each month we’re trying to hit a moving target with our comments. We aim to pinpoint as closely as possible the mood of the moment in market and the media with a message that captures the signal and cancels the noise. Our mission is to help equip long term investors with timely, useful information that helps keep focus and perspective amidst the maelstrom of meaningless noise about the world in which we live and make investment decisions.  This is critical to maintaining a long term investment strategy and one that requires a clear internal discipline.

With nearly three decades’ experience, we know the dynamics that shipwreck most retirement investors come both from without and from within. We all battle the noise outside and without a strong, and well-founded internal attitude the best external strategy will fail.  It’s for these reasons we take our efforts here seriously while trying to offer a bit of ‘tongue in cheek’ humor and take some jabs at conventional wisdom. It’s all aimed to help interpret what we hear and see going on around in support of your – ‘all the time peace of mind’.

With the second month of the summer slipping away, it’s fair to say that not that much has changed in the markets from a month ago as June posted its best S&P 500 performance in decades. Although it may seem like stocks are still soaring (and some are), the reality is that Foreign Stocks have held more gains year-to-date than most US Stocks.

Of course we note just this week that both the NASDAQ and the S&P 500 meaningfully hit new records. However, outside of Large Growth which is very tech heavy and the NASDAQ, smaller US companies and particularly US Value Stocks of all sizes gave up some ground while foreign stocks slipped unmistakably less. This narrows the gap for Foreign Stocks with their peers across the pond here in year-to-date performance. This also means a globally diversified investment strategy looks better overall than an all US stock portfolio at this point.

Who would have guessed?  This is why we use a global strategy. Since no-one can predict accurately where returns are going to come from, we’re happy to take them from wherever they pop up and play the sprinters off the slower ones while they lag (for the time being). How do we do this? By trimming a bit from the fast ones – those getting ahead of their allocation targets and buying up the slower stocks in anticipation of their turn in the sun. That’s called selling high and buying low.

It works if you always own stocks that are moving up and down differently on their way up. This is how we stack up the securities markets in your accounts, separated out into asset classes through ETF’s and mutual funds. Each fund owns a predetermined ‘allocation’ that rises and falls by percentage exposure allowing us to capture the patterns and leverage the natural process of periodic ‘winners’ and ‘losers’. This is ‘behind the scenes’ work always going on. We’re directing your attention to the reality of these changes as they occur in your portfolio. Here, these activities are placed in the context of the broader events coming through the fire hose of mass media reporting on the markets and global economy.

So what about these broader events that compete for our attention? And what does that mean to our money in the markets. In the first place, look for the Federal Reserve to cut short term rates by at least one-quarter point and probably not more next week. That’s good for the markets but already priced in. No action will certainly disappoint and probably bring a sudden adjustment. On the other hand, should the Fed cut more, or to give an unmistakable signal there’s more to come soon, look for the market to take off again.

The global economy, while still growing, is decidedly slowing. We don’t think this is reason for great concern at the moment. There is very little suggesting a recession is closing in on the US or global economy. And there is very much to suggest just the opposite. There are concerns for sure, but that’s always the case. In fact, it’s when investors largely show no visible signs of concern that we get the antsiest as this reflects highly unrealistic expectations and leads to an overabundance of greed which in turn usually sends stock prices over the edge of the proverbial cliff.

The market cares most about uncertainty. It likes numbers that are not too hot and not too cold and that’s about what we see in the fundamentals of both the US and global economies at the moment. Of course, anything could disrupt this view and some things that could are always within view. It’s like someone famous once said, “I’ve experienced lots of trauma in my life, some of it actually happened to me.”

Have a great rest of your summer and we’ll be back to check in then.

Indexes are listed in respective order to their reference above:  S&P 500 TR, MSCI EAFE NR USD, NASDAQ TR USD, DJ US TSM Large Cap Growth TR USD, DJ US TSM Value TR USD.  These materials have been prepared solely for informational purposes based upon data generally available to the public from sources believed to be reliable. All performance references are to benchmark indexes. Performance of specific funds will vary from respective benchmarks. Past performance is not an assurance of future results. Each index cited is provided to illustrate market trends for various asset classes. It is not possible to invest directly in an index.