August lived up to its historic reputation as one of the worst-performing months of the year for the stock market, as the S&P 500 index fell by about 1.5% last month, basically erasing July’s gains. Interestingly, for as great as 2019 has been for the S&P 500, the index is only up about 3% for the 52 weeks ended August 31. For contrast, the Barclays Aggregate Bond Index is up about 10%! Bonds have had a great year as interest rates have fallen.
From here, I remain cautious about portfolio allocation. There are some tailwinds, including those low-interest rates. As you can imagine, there are fewer takers for a 30-year US Treasury bond at today’s rate of 2.02% than there were back last November when the same bond yielded 3.45%. So, perhaps some of those bond buyers will look at dividend-paying stocks, instead. Also, consumer confidence remains high and, despite the slow summer, the trend for stocks is still higher. The rest of the picture is cloudier. After many years of decreasing initial jobless claims, the number has ticked higher recently. Transportation indices are lower, indicating that fewer goods are being shipped. GDP, the very broad measure of economic growth, is being revised lower. The strong US Dollar also creates a headwind for corporate profits.
For these reasons, I’m proceeding with caution. For new money coming in, we are buying on dips, which seem to come about every other day! I like technology, health care, and communications-related stocks right now, and I’m underweighting utilities, consumer staples (like groceries) and basic materials. Likewise, we have become more active in profit-taking when stocks do run-up. After the rally this year in bonds, I’m also waiting to buy fixed income on dips. Alternative strategies seem to make a great deal of sense, as they may allow portfolios to have an investment that is not correlated to stocks or bonds, or may put some protection on a portfolio. They can be tricky, so if you have any questions about them, please let me know.
I think now is a great time to revisit your risk tolerance, especially as it relates to your goals. If you have not made a Signature Life Plan with us, I highly recommend it. The plan will give you insight as to what sort of investment portfolio you need to help meet your financial needs and desires, and will alert you if you are taking too much or too little risk. That’s a great start when we’re trying to match your portfolio up to your risk tolerance, and may help you keep market turbulence in perspective.
I hope you enjoy September. I, for one, am glad to see the return of college football and I’m hopeful for cooler weather. If you have any questions about your portfolio, please don’t hesitate to give me a call or send me an email.
As always, these recommendations are mine, and may or may not be the same as those of Raymond James. This is not a solicitation to invest, although we do invite you to review your portfolio with us to see if any changes should be made.
Past performance may not be indicative of future results. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk including the possible loss of capital. Asset allocation and diversification do not guarantee a profit nor protect against loss. The foregoing is not a recommendation to buy or sell any individual security or any combination of securities.
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