September Market Update: Prudent Risk Management

The S&P 500 posted a -1.81% return for the month of August. The trailing 1-year return for the S&P 500 as of August 31, 2019 was a wee 0.86%. The concern in the market is that, a bit over a decade into the recovery from the financial crisis, a trade war between the U.S. and China could create a substantial drag on the global economy and push the U.S. into recession. When the 3-month T-Bill and 10-Year Treasury bond curve inverts for one quarter which it did at the end of June, it historically has been a warning signal to investors that they need to reduce risk exposures of their investments. To learn more about this phenomenon please listen to Men Faber's podcast episode #172 with Professor Cam Harvey. Campbell Harvey is Professor of Finance at the Fuqua School of Business, Duke University and a Research Associate of the National Bureau of Economic Research in Cambridge, Massachusetts and he wrote his 1986 dissertation on the topic of yield curve inversions preceding recessions. Let's review price, sentiment and valuation as we enter September 2019.

Retirement Data: Fidelity Plan Balances Q2 2019

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Source: Fidelity

On August 21, 2019 Fidelity released its quarterly analysis of retirement savings trends, including account balances, contributions and savings behaviors, across more than 30 million retirement accounts. Average account balances continued to increase in the second quarter, reaching near-record levels after experiencing a dip at the end of 2018. Here are some findings from their press release:

August Market Update: Growth and Inflation Cycles Declining

The S&P 500 gained 1.31% in July. The S&P 500 starts the month less than one hundred points from an all-time high. The real action over the last few months has been in the bond market. U.S. ten-year treasury bonds have dropped from 2.503% on May 1 to 1.89% on August 1. Looking at one-year trailing returns iShares 7-10 Year Treasury Bond ETF, symbol IEF, has outperformed SPDR® S&P 500 ETF, symbol SPY, 11.90% to 7.07%. Let's examine price, sentiment and valuation as we start August.

July Market Update: Climbing a Wall of Worry

The S&P 500 gained 6.89% in June. YTD for the first half of 2019 the S&P 500 is up 17.35% (Note: YTD increase was 17.51% at the end of April). June market returns played out like the opposite of the December 2018 market. In the last week of November 2018, the S&P 500 had an incredible rally pushing the Ivy Portfolio signal to "invested" as we started December. I suggested investors not take the bait and stay in "cash." December returns declined until our current rally started after Christmas Eve market lows. Contrast that time period with the May to June period. At the end of May stocks declined on news of new tariffs potentially being placed on Mexican imports. This drove the Ivy Portfolio signal to "cash" on the last trading day of May, setting investors up for the opposite of the scenario that happened in the November-December timeframe of 2018. As soon as Trump indicated that Mexico had complied with his administrations' requests for help monitoring the flow of migrants the tariff threat stopped. This news sent stocks higher, helping investors ride the bullish stock wave a bit longer. Let's examine price, sentiment and valuation as we start July.

Retirement Data: Vanguard How America Saves

The following is from Vanguard's press release:

The 18th edition of How America Saves delivers a comprehensive analysis of the retirement savings behavior of 5 million participants in about 1,900 defined contribution (DC) retirement plans for which Vanguard provides recordkeeping services. Our data-rich report examines trends in how participants accumulate, manage, and access retirement savings.

2019 edition highlights

• 6 of 10 Vanguard participants were invested in a professionally managed allocation at year-end 2018. The growing use of target-date funds continues to drive this trend. 

June Market Update - Caution Mode

The S&P 500 finished May with a monthly loss of 6.58%. It ended the month at 2,752.06. Are you wondering what the mood in the market is at the beginning of June? Sovereign bond markets have your answer. In the U.S., the 10-year treasury yield dropped from 2.503% May 1 to 2.13% May 31. During the same period, the German 10-year moved from 0.016% to -0.20%. On May 24, Scott Minerd, Global Chief Investment Officer of Guggenheim Partners wrote, "We have seen how sensitive markets have been to the trade news. Sovereign bond yields around the world are sending an ominous message, which investors in risk assets ignore at great peril." Now, let's review price, sentiment, and valuation as we start June.

Retirement Data: Fidelity Plan Balances Q1 2019

Please click on chart above to enlarge
Source: Fidelity

Fidelity recently released their Q1 2019 Retirement Account Balances press release. I focus on these numbers because of Fidelity's size. They have $7.4 trillion in client assets, including more than 30 million retirement accounts. Here are a few items to highlight from their press release:

• As of Q1 2019, 52% of individuals had all of their 401(k) savings in a target date fund, compared with just 16% in Q1 2009. In addition, a much lower percentage of individuals had all of their 401(k) savings in stocks -- only 7% of individuals had an all-stock 401(k), compared with 15% who had an all-stock 401(k) allocation in Q1 2009.