5 Minute Market Commentary – February 23, 2016

Trust Dale CFGI am happy to present this week’s market commentary from FormulaFolio Investments.  The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

Markets finally got their first big up week of the year this past week, with many equity markets rising 3-5%. Bonds slipped up just a touch for the week, but remain the only asset class in positive territory year to date.

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Lesson to be learned: One week up, one week down (sometimes a few weeks down), one week flat. Markets can do this in the short term, which is why we have to invest for the long term.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).  In future posts, I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to be at least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) increased slightly in January, signaling a modest slowdown in the US Economy.  The Bull/Bear indicator is unchanged this week (100% bearish).  Historically, this means our models think there is a slightly higher likelihood of stock market declines in the near term (think <18 months).

Weekly Comments

With the past week market rally US stocks are now about 10% away from a true bear market. This means stocks are largely in no-mans land, still trending down, but not yet in a bear market.

Markets like this can be frustrating as the prudent investor needs to be at least partially invested to make sure they don’t miss out on a quick recovery, should this simply be a market correction, while also avoiding sharp losses should this turn out to become a true bear (20% or greater decline over 6 months or longer time period). Either way, we know we’ll be only partially right (and partially wrong for that matter).

Our view is being correct when a bear market comes is far more valuable than being correct in assuming the market will go up. 20% or larger losses are not only hard to take psychologically, they can take a long time to recover from as well.

So, even though the past week was up, and it’s possible this week could be too, our stance on market conditions remains unchanged. There’s still a good probability the markets go lower in the coming months and we believe investors should be cautiously invested. This doesn’t mean to hide money under the mattress, but it does mean being balanced and favoring a conservative investments over aggressive growth investments.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

5 Minute Market Commentary – February 8, 2016

Trust Dale CFGI am happy to present this week’s market commentary from FormulaFolio Investments.  The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

After a strong finish to January, the markets broadly were a dud to start February.  In most cases the markets gave up their gains from the prior 5 days and most are either at or very close to, their lows for the year.

I’ve mentioned quite a bit in the last 6+ months that I think we’re headed for a soft bear market.  Small cap stocks, international stocks, and commodities are already there.  The S&P 500 and Dow Jones Industrial Average are about 8-10% away.

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Lesson to be learned: One week up, one week down (sometimes a few weeks down), one week flat.  Markets can do this in the short term, which is why we have to invest for the long term.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).  In future posts, I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to be at least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) increased slightly in January, signaling a modest slowdown in the US Economy.  The Bull/Bear indicator is unchanged this week (100% bearish).  Historically, this means our models think there is a slightly higher likelihood of stock market declines in the near term (think <18 months).

Screen Shot 2016-01-31 at 11.48.08 AM

Weekly Comments

Sometimes a week will go by and there’s very little new to say.  This is the case from the past week.   The markets have been trending down for multiple months and as of now, that hasn’t changed.

So, if we’re prepared, there’s little to change.  We have been out in front of this market correction for a while, and until we see some positive momentum, I believe it’s wise to remain cautious.  Caution, however, doesn’t mean panic, it just means to have a disciplined, risk appropriate investment plan, and stick to it.  More to come soon.  Stay tuned.

Regards,

Phil Calandra and Jason Wenk

Chief Investment Strategists

5 Minute Market Commentary – February 2, 2016

Trust Dale CFGI am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

Last week provided a nice respite to an otherwise bad start to 2016. All asset classes posted gains for the week, and raised the YTD losses to middle single digit losses for most “growth” asset classes.

The trailing 1-year is still bleak, and the market may have just bounced after being oversold, but any and all gains are appreciated in otherwise downward trending markets.

Screen Shot 2016-01-31 at 11.47.54 AM

Lesson to be learned: One week up, one week down (sometimes a few weeks down), one week flat. Markets can do this in the short term, which is why we have to invest for the long term.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) increased slightly in January, signaling a modest slowdown in the US Economy. The Bull/Bear indicator changed to 100% bearish this week. Historically, this means our models think there is a slightly higher likelihood of stock market declines in the near term (think <18 months).

Screen Shot 2016-01-31 at 11.48.08 AM

Weekly Comments

A broad increase in stocks, bonds, and commodities last week helped the January cause quite a bit. It was still bad, but could have been really bad. It’s also a good sign to finish the month strong as we move into February, as there are numerous technical indicators that held up (the S&P 500 bouncing off 1,800, and moving higher, namely).

From my perspective, it’s fairly likely we’ll see an actual bear market. A bear market is when the broad markets decline 20% or more over a 6 month or longer time period. As of Friday’s close, the S&P 500 and Dow Jones Industrial Average are both down about 10% from their highs in May 2015.

That being said, markets are fickle. If they were easy to predict, everyone would be a successful investor. Sadly, that’s not the case. All we can do as investors is to analyze the data we have available and make smart decisions for the future. While the data we have is suggestive of a bear market coming, there’s no assurance that will be the case.

As such, our outlook and guidance to clients remains unchanged. We need to be prepared for the worst, but also stay committed to a long term investment plan to ensure we don’t miss out (entirely) on the best investing days of the year. This balanced approach only works if we’re willing to ride out some of the short term swings that go along with the long term rewards.

Looking forward, we continue to advocate investors remaining balanced to cautious, and no matter how hard it might be, remaining patient. The markets look more bearish than bullish, and until that trend reverses, we’re wise to be patiently cautious.

More to come soon. Stay tuned.

Phil Calandra and Jason Wenk
Chief Investment Strategists