We have certainly entered the beginning of the summer doldrums, and the weather is already hot. The old saying of “sell in May and go away, come again on Labor Day” has yet to come to fruition. But we are seeing conflicting signals. The stock markets did sell off a little in the month of May, and the S&P 500 was down approximately 6.5%. Now, we have seen a bounce in June from those over-sold levels at the end of May.
One June 1, we received a “risk off” signal from our math formulas. Remember, if you are in one of our advisory models, we are following a rules-based method designed to help you avoid large losses in your account. Therefore, we traded “risk off” moving from stocks to bonds for a portion of our models. However, our credit spread formula was our only risk off signal. This resulted in a relatively moderate risk off move,so we are still holding growth-oriented positions, even if they are traditionally more conservative than stocks. Of course, I am not speaking directly about any individual’s account, but our models as a whole.
Overall, this was a conflicting signal similar to the one we received in April of 2018. This was conflicting because the stock market did not sell off drastically, and was recovering when our formula pointed to risk off. Couple this with the slowing economy, inverted yield curve, and a Federal Reserve that seems cornered into acting, and emotionally we did not mind this risk off move at all. So far this year, the markets have given us relatively good returns, better than expected. Yet, we still see long term problems for the economy and markets. This is exactly what we built our rules-based models for, to look at the data and keep our emotions out of the equation.
The following is the market commentary from our investment team for the month of June. There are some valuable points to highlight. Feel free to read the entire report until your heart is content! Of course, your Sound advisor is happy to discuss this with you.
We thank you for the trust you give us in managing your money.