Where are we, at the end of August?
It seems like every month I write about the seemingly contradictory market performance. This month, however, was especially crazy. All of this points to the importance of choosing market sectors that are working and avoiding sectors that aren’t. Selectivity is a sign of an aging bull market.
All of our numbers are courtesy of Morningstar.com. The broad US stock market was actually DOWN in August, as indicated by the NYSE Composite index -0.77% and the Russell 2000 (small company) -1.29%. Small companies comprise the majority of stocks (by number, not by dollar value) and the New York Stock Exchange represents the vast majority of stocks we would invest in.
HOWEVER, it’s noteworthy that tech stocks keep pressing upward and diversified, emerging markets (examples: Asia minus Japan, India, Brazil, etc.) keep showing great strength as they have all year. They were up over 2%. …very large divergences. And, finally, among our sector fund choices, biotechnology keeps marching higher, with FBIOX up over 5%!!
| S&P 500 | 0.05% |
| Nasdaq (technology) | 1.27% |
| Dow | 0.26% |
| NYSE Composite | -0.77% |
| Morningstar Diversified Emerging Mkts | 2.22% |
| Russell 2000 (small co) | -1.39% |
| US Aggregate Bond | 0.90% |
How did our funds do? Clients of KII did very well for the month, as you can see below (courtesy morningstar.com):
| IEMG | 2.31% | iShares Emerging Markets | Fidelity commission free stock ETF |
| FQAL | 0.78% | Fidelity Quality | Fidelity commission free stock ETF |
| ONEQ | 1.35% | Fidelity Nasdaq | Fidelity commission free stock ETF |
| FTEC | 3.08% | Fidelity Info Tech | Fidelity commission free stock ETF |
| FDIS | -1.83% | Fidelity Discretionary | Fidelity commission free stock ETF |
| FMAT | 0.73% | Fidelity Materials | Fidelity commission free stock ETF |
| FIDU | 0.17% | Fidelity Industrials | Fidelity commission free stock ETF |
| FBIOX | 5.34% | Fidelity Biotech | stock mutual fund |
| FSMEX | 1.54% | Fidelity Medical Equipment | stock mutual fund |
| CFRAX | -0.14% | Catalyst floating rate | bond mutual fund |
| FFRAX | -0.29% | Fidelity floating rate | bond mutual fund |
| RNDLX | 0.43% | RiverNorth Strategic | bond mutual fund |
| FNMIX | 2.02% | Fidelity New Market | bond mutual fund |
| LENDX | 0.88% | Stone Ridge Alternative | peer to peer fixed return mutual fund |
| Prime Meridian Small Bus LP | 0.68% | 1 month lag | private peer to peer fixed return |
| Prime Meridian Real Estate LP | 0.64% | 1 month lag | private peer to peer fixed return |
| KIP, Kay Income Partners LP | 0.56% | private mortgage fund |
As I’ve stated many times, it is hard to play the selectivity game, but potentially very rewarding.
Is A Correction In Our Future?
There is generally at least one correction of at least 10% every year, but we haven’t had one since early 2016. We are overdue and September/October is historically the weak period for the stock market. So, if we wanted to get cute we might sell and try to get back in at lower prices. This is a VERY hard strategy to pull off, partly because: A. it might not happen and B. by the time we knew it was over, prices might be higher than when we sold. The bottom line is it’s just too hard to do.
Is A Bear Market In Our Future?
Clients keep sending me articles talking about how a bear market is due. The fact is, a bear market is ALWAYS in our future. Further, this is the one event that we would always want to avoid. Fortunately, bear markets give warning signs. As I’ve stated in previous newsletters, there is a progressive deterioration that is just not evident right now. The 2008 stock market peak happened in 2007, beginning a year of that progressive deterioration. I will be on top of this as best I know how!
Your market model consists of a blend of stock and fixed return funds that corresponds to three things: your time horizon, your temperament and your need for income (principally retirees).
Your investment return(s) for the month of August was/were as follows:
We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.
Best,