A Season of Change

You have probably heard it said before, “sell in May and go away”. This old stock market cliché refers to an anomaly known as seasonality. Its basic tenet instructs investors to hold stocks during the months of November through April. Then, stocks are sold and replaced with bonds in the other six-months. Contrary to efficient market theory, stocks have been found to perform extremely well in the best six months and become laggards in the worst six-months.
Admittedly, a wholly dedicated strategy to seasonality would not constitute a prudent financial plan. It can be quite costly to be out of stocks during their best performing month. Assuming, that month occurs on or between May and October; long-term wealth goals will be penalized by missing those stock returns. However, the two middle quarters of 2017 are uniquely packed with upcoming events that might warrant some form of a risk-management strategy.  Our diversified, actively managed approach strives to provide prudent risk management in these environments.

Legislators in Washington D.C. just experienced a demoralizing blow. Speaker of the House, Paul Ryan canceled a vote on repealing and replacing certain parts of the Affordable Care Act, because not all House Republicans could agree on the bill. The House Republican divide further raised suspicion that complex legislation like tax reform and de-regulation could also encounter its own obstacles. Coincidently, stocks in the industrial average put up eight straight days of losses surrounding the canceled vote.


European events continue to gather much attention. Prime Minister, Theresa May just notified the European Council of Britain’s official intent to exit the union. Once approved, the time-table for exit is set in motion. The French cast their first round of votes for their next president in the last half of April. Although, unexpected to win, Marine Le Pen, a presidential candidate, is a staunch critic of the European Union, and advocates for a French exit. Plenty of issues remain in the spotlight that keeps the region in a state of post-recession fragility, such as its anti-establishment movements and ailing banks and economies in Europe’s southern regions,
Although, it is not all alarming news for Europe. Euro-area unemployment has retrenched to its lowest level since 2009, and prices of goods and services are finally reflating albeit slowly. Dutch voters managed to avoid electing a prime minister who campaigned for a divorce between the Netherlands and the European Union. Lastly, Angela Merkel is expected to be re-elected as the Chancellor of Germany in the September elections.

Despite the European economic and political seesaw and the tough policy decisions that the European Central Bank will soon have to answer, European stocks have put up impressive gains this year. Also, the Euro currency continues to show its strength against the US dollar.
Lastly, the Federal Open Market Committee (FOMC) enters a period of acute policy decision making. They recently rose the cost of borrowing on excess bank reserves to 0.75%-1.00%, and will be looking to make additional increases throughout the year. Yet, the last thing the FOMC wants to do is tip the economy into recession by raising rates too fast. But, the FOMC confronts multiple opposing factors in future policy meetings. One, rarely has the rate of inflation and wage growth been so slow when unemployment has been so low. Second, poor productivity impedes how quickly rates can rise. Finally, the FOMC must counterbalance any type of fiscal stimulus that could come from public policy. The next FOMC meeting is scheduled for early May.  



Foreign assets clearly outperformed in March in both the equity and fixed income markets.  This is another good reminder of the power of global diversification.  These assets have come down in value rather significantly over the last few years due to political and economic uncertainty.  Although much of this risk remains, select foreign investments appear attractive.  The primary benchmarks for our Core Allocation portfolios are Morningstar’s World Allocation and Tactical Allocation categories of managers.  The Core models continue to offer attractive returns on a risk adjusted basis relative to these benchmarks.  The asset allocation decisions continue to be the primary driver of return for our Core portfolios.  Our investment team continues to closely monitor the evolving global landscape in search of opportunity.