March 27th, 2017
Here are several highlights from last week's market activity, as well as developing stories the investment team is following this week. As always, we remain committed to helping you navigate the ever changing investment environment.
The following highlights should not be viewed as a recommendation, nor is this a notification of an impending change in asset allocation. For more information, please contact your advisor with any questions.
- Equity markets took a step back, as investors voted their concern around the ability of the administration to (actually) pass policy changes. The DJIA finished the week at 20596.72, down -1.52% on the week. The S&P 500 closed at 2343.98, down -1.44% on the week. The NASDAQ finished down -1.22% on the week. U.S. 10-year Treasury ended the week yielding 2.39%. In the energy markets, crude oil settled at $47.97. Year-to-date the S&P 500 is up +4.7%. The MSCI EAFE, which measures equity market performance of developed markets outside the US and Canada, was down -0.8% on the week.
- On the economic front… Talk on the Street was around the failure to repeal Obamacare and whether it could jeopardize the Trump administration's tax and infrastructure plan – and possibly cause the market to react adversely; while the S&P 500 fell 1.2% on Tuesday, it is important to remember that the index had gone 160 days without a 1% drop.
- In other news… House leaders pulled their legislation to replace the ACA; FBI director Comey told a House Intelligence Committee the agency is investigating whether members of the President's campaign colluded with Russia to influence the election; Four people were killed in a London terrorist attack; Ford (F) issued an earnings warning; U.S. and North Korean tensions continued to escalate; and the men's and women's Oregon Ducks keep moving along in the NCAA Basketball tourney…Go Ducks!
- In the markets… Rates have been moving lower as Washington failed to deliver any changes to healthcare despite the President's ultimatum to Congress. Markets will keep a close eye on any next steps and whether the administration pivots to tax reform. The "reflation" trade is waning, and Treasuries are rallying as we head into the final week of March.
- Also on the radar… The British PM begins the U.K. departure from the EU; Senate hearings on the Supreme Court nominee, Gorsuch, continue; final 4th quarter GDP growth may show a slight uptick; and personal income growth is reported.
- Investment Term of the Week: Rebalancing - Rebalancing is the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to help maintain an original desired level of asset allocation. For example, say an original target asset allocation was 50% stocks and 50% bonds. If the stocks performed well during the period, it could have increased the stock weighting of the portfolio to 70%. The investor may then decide to sell some stocks and buy bonds to get the portfolio back to the original target allocation of 50/50.
We all know that volatility is normal. The important part is to not let volatility derail our investment objectives. Last week we looked at historical market periods. Despite many pullbacks intra-year, most those years ended with positive returns. Volatility may also impact the allocation of one's portfolio differently over the course of time. Stocks may be up, while bonds may be down. Even balanced portfolios can drift when markets fluctuate.
Markets swing between high and lows, but if a diversified portfolio is regularly rebalanced, it doesn't have to follow suit. (As a refresher, please go back and see our investment term of the week for a quick explanation of rebalancing)
A buy-and-hold strategy that doesn't include annual rebalancing can lead the best-performing asset class to dominate the portfolio, often just before a downturn, when balance and diversification are most important. Regular rebalancing helps investors stay in control, and has historically generated more return for the risk taken, compared to buy-and-hold alone. The charts below help to show the impact not rebalancing may have on a portfolio, not only from the asset composition, but also the return/risk metrics.
Through our portfolio monitoring process, MWM will periodically take actions to rebalance portfolios, thus ensuring proper risk exposure and asset class allocation.
As we begin to wind down our series on long-term investing we will spend some time next week discussing the importance of staying invested - in good times and bad.
Disclosures: The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of McGee Wealth Management and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as "The Dow" is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, income prices generally rise. Diversification does not ensure a profit or guarantee against a loss.