June 2, 2017
We are in an interesting, almost contradictory market pattern. In May, some sectors were up strongly, some were down and the broader indexes were up very modestly. A couple of things were telling: The small cap index was down over 2%, while the Nasdaq (technology) was up over 2%. The strongest areas were technology (especially information tech) and emerging markets (that means Brazil, India, South Korea, China and others). The latter was in spite of a large drop in the Brazilian stock market in May due to a scandal of sorts. The New York Stock Exchange Composite is probably the most representative.
The strength in consumer staples is of interest since consumer staples consists of “stodgier” companies like Proctor and Gamble, Coca-Cola, Wal-Mart (very strong now), CVS and Costco. Usually this is a good sector to be in during pull backs and bear markets.
In the healthiest bull market patterns, virtually all sectors show strength to varying degrees, generally led by the small cap stocks. Selective strength like what we are seeing now projects uncertainty and doubt and may foreshadow a correction. The statistics that I study do NOT show an impending bear market, however.
Following are the various market averages I track, for the month of May, courtesy Morningstar.com:
| Stock Indexes | |
| NYSE Composite | 0.54% |
| S&P 500 | 1.16% |
| Dow Jones Industrial Average | 0.33% |
| Morningstar Small Cap Core | -2.34% |
| Nasdaq Composite (technology) | 2.50% |
| Bond Index | |
| US Aggregate Bond | 0.77% |
I keep mentioning that I no longer use “alternative” all-weather types of funds. I am building the accounts strictly to combine stock funds and fixed funds, allocated in models that respect your risk profile.
The goal is to choose the best stock funds I can using 3 month momentum, selecting mostly from among Fidelity’s low cost, commission free index ETFs (exchange traded funds). I love them because they cost so much less than mutual funds. They are commission free as long as we stay in them a minimum of 30 days. If I have no commission free ETF I may use a Fidelity Select mutual fund.
Following are the funds we are using today and their May 2017 performance (courtesy Morningstar.com). As you can see, we are generally staying ahead of the market with these choices. I will probably phase at least partially out of the FMAT and FBIOX funds. I don’t just trade suddenly in and out – at risk of selling low and buying high. Rather, I try to keep generally on board of trends. I feel that energy prices MAY be peaking a bit and that’s why the FMAT may be stalling. In the case of FBIOX, this is a volatile fund (e.g. up 2.31% on June 1, up 11.87% YTD) but I also like the currently very strong Fidelity Select Medical Equipment (FSMEX) and would like to diversify into that.
Fund returns courtesy Morningstar.com.
| Stock funds | ||
| ONEQ, Fidelity Nasdaq Composite | 2.64% | |
| FMAT, Fidelity Materials Index | -0.81% | |
| FQAL, Fidelity Quality Factor | 0.98% | |
| IEMG, Fidelity Emerging Markets | 2.34% | |
| FBIOX, Fidelity Biotech mutual fund | -6.64% | |
| FDIS, Fidelity Consumer Discretionary Index | 0.58% | |
| FSTA, Fidelity Consumer Staples Index | 2.50% | |
| FSMEX, Fidelity Medical Equipment | 1.27% | Certain accounts |
| Fixed funds | ||
| LENDX, Stone Ridge Lending Fd (peer to peer) | 0.68% | |
| CFRAX, Catalyst Floating Rate | 0.48% | |
| FFRHX, Fidelity Floating Rate | 0.40% | |
| RNDLX, RiverNorth Strategic | 0.73% | |
| FNMIX, Fidelity New Markets | 0.58% | |
| Prime Meridian Small Business LP | 0.71% | 1 month lag |
| Prime Meridian Real Estate LP | 0.63% | 1 month lag |
| KIP, Kay Income Partners LP | 0.56% |
If you are a client, let me know if you would like to discuss your risk profile and investment model. I am available at your convenience. I have Skype video in case you would like to do a video conference.