Where are we, as of the end of July?
Last month I wrote about the seemingly contradictory market patters, with the Nasdaq (technology) down and other sectors up. This month the Nasdaq was a high flyer. There are, however, a couple of persistent trends: small company stocks are underachieving and should be avoided, while emerging markets (growing foreign markets, such as India, Taiwan, South Korea, etc) keep outperforming.
All of this is characteristic of an aging, mature bull market. Fresh bull markets, such as 2003 and 2009 are usually led by small companies. Today, investment dollars are moving into large companies and certain foreign stocks (emerging markets). There is definite selectivity. Let’s look at the July 2017 performance of various market indices (courtesy morningstar.com):
| S&P 500 | 1.93% |
| Nasdaq | 3.38% |
| Dow | 2.54% |
| NY Stock Exchange Composite | 1.75% |
| Morningstar Diversified Emerging Mkts | 5.07% |
| Russell 2000 (small co) | 0.69% |
| US Aggregate Bond | 0.43% |
How did our funds do? Some funds have been added or removed. Here are the results for July 2017 (courtesy morningstar.com):
| IEMG | 5.50% | iShares Emerging Markets, commission free ETF |
| FQAL | 1.89% | Fidelity Quality, commission free ETF |
| ONEQ | 3.43% | Fidelity Nasdaq, commission free ETF |
| FTEC | 4.14% | Fidelity Info Tech, commission free ETF |
| FDIS | 1.66% | Fidelity Discretionary, commission free ETF |
| FMAT | 1.25% | Fidelity Materials, commission free ETF |
| FIDU | 0.46% | Fidelity Industrials, commission free ETF |
| FBIOX | 2.64% | Fidelity Biotech, stock mutual fund |
| FSMEX | -1.53% | Fidelity Medical Equipment, stock mutual fund |
| CFRAX | 1.37% | Catalyst floating rate, bond mutual fund |
| RNDLX | 0.82% | RiverNorth Strategic, bond mutual fund |
| FNMIX | 0.73% | Fidelity New Market, bond mutual fund |
| LENDX | 0.29% | 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 | 0.79% | 1 month lag, private peer to peer fixed return |
| KIP, Kay Income Partners LP | 0.56% | private mortgage fund |
It can be hard to play the selectivity game, but generally we are staying ahead of the averages.
When will this bull market end?
As I’ve stated many times in recent months, we remain in a healthy (although aging) bull market. Following is a quote from one of my preferred subscription analyses, based on market statistics:
Where do we stand now? Thus far, our measurements of Buying Power and Selling Pressure still reflect healthy trend patterns. Instead of rising, Selling Pressure has been steadily declining, suggesting that investors have been holding back on sales in expectation of higher prices in the months ahead. As of July 19th, Selling Pressure was at its lowest level in more than 27 months. Again, as of July 19th, Buying Power had risen to its highest level in 15 months, suggesting that investors still find many stocks offering attractive values.
There are many people who still have not bought into the rising market since the election. They just don’t believe it makes sense for the markets to rise. Once these people have finally bought in, possibly for fear of being left behind, we may be talking about a more serious drop.
Can we avoid trouble?
The answer, as you might expect, is maybe yes, maybe no, depending on what you mean by trouble. The reason we use different models, such as aggressive, moderate, conservative is that we can’t avoid swings that may last a matter of months. Many investors (especially retirees) NEED a smoother growth curve. A 10% correction, for example (which has not occurred since January 2016), is practically impossible to avoid. It is part of a healthy bull market. You might sell and then wind up buying back in higher than you sold.
A full-fledged bear market, however, such as 2008 and 2000-2002, shows us a steady decline in advance of the real hard dive. The 2008 bear market actually peaked in 2007 and was working its way down for many months before the September until March fiasco. I feel better about battling to protect you from this kind of trouble, although it’s always difficult to fight a bear.
Finally, as always, I remind you that the proverbial “black swans” can fly over us at any time (think geopolitical). As stated before, I build models to combine the above funds within several risk/reward profiles. Generally, the aggressive model is 100% stock, conservative 50% stock and two moderate models reflecting something between 70% and 80+% stock. The balance is a blend of bond and peer to peer fixed return funds.
Your investment return(s) for the month of July 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.