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Earnings' season for corporate America-which was a good one-is behind us. No rate hike is expected at the next Federal Reserve policy meeting in September, and global monetary policy officials are unlikely to make a radical change in course at their annual symposium in Wyoming. Oh, the quiet dog days of summer!
In this period of calm, we recommend that you spend a few hours revisiting your target allocations to make sure you're still on track. Especially given the out-performance many have experienced in equities.
As markets reach new highs, it can be tempting to "let your winners run." But, when you first established your unique mix of investment categories (aka your asset allocation), you probably spent some time, carefully matching expected returns with a level of risk you were willing to accept.
When bull markets last as long as this one, portfolios drift away from those original targets. The exhibit to the right shows that drift on a 60/40 mix-if not rebalanced-over the last 20 years. Over that time, the investor's equity allocation ranged from 20% below to 15% above their long term target.
The benefit to regularly bringing your allocation back to targets is borne out in the investment returns. Consider the second exhibit below.
Annually adjusting portfolios back to the original 60/40 target, brought rewards in terms of greater return and less risk over that same 20 year period.
Given today's high equity valuations and elevated geopolitical risks, we suggest that late summer is the perfect time to review your asset allocation and rebalance your portfolios back to target.
Exhibit sources: Standard & Poor's, Barclays, FactSet, J.P. Morgan Asset Management.
Annual rebalance and buy-and-hold strategies are composed of S&P 500 and Barclays U.S. Aggregate total return indexes on a monthly basis. Annualized risk and return statistics are calculated from 1/31/1996 - 12/31/2016 using monthly data. The risk-free rate is represented by the Barclays 1-3 month Treasury Bellwether index.
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Equities started last week strong as tensions with North Korea subsided. However, markets turned negative as the controversy surrounding President Trump's response to the violence in Charlottesville, Virginia grew. Losses accelerated after the president disbanded two CEO advisory councils and again after news of the terrorist attack in Barcelona, Spain.
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> Rocky Week:
As mentioned above, the political backdrop dominated sentiment, and therefore performance, of large cap US stocks last week. Bloomberg reported that the Trump Bubble has sprung a leak. The departure of Steve Bannon from the White House on Friday seemed to be something of a patch, but whether or not markets will see the tax-and-regulation cuts they've been betting on remains to be seen.
Reports of Bannon's White House exit on Friday temporarily reversed some of Thursday's losses stemming from a CEO revolt.
> Retail Sales:
Retail sales have been among the most disappointing of any economic indicator this year but with last week's report, it appears the consumer was back in the stores in July. The report showed a 0.6% monthly gain that not only exceeded expectations but also included sizable upward revisions to the prior months' readings.
> Jackson Hole:
The Federal Reserve's annual Jackson Hole Symposium takes place this week (August 24 - 26). This gathering of global central bankers began in 1978 and tends to be closely watched by markets. One of the key meeting topics for both the Federal Reserve and the European Central Bank will be inflation, which for some time has been trending below the 2% target both banks use.
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STRATEGIC  DISCUSSIONS LUNCHEON, SEPTEMBER 26
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In our ongoing effort to bring you prominent thought leaders sharing insights on topics affecting the capital markets, we continue our
Strategic Discussions series this fall with:
Seeking Cover:
Current Geopolitical Events
and their Potential Impact on Elevated Market Valuations
Our featured speaker is James Hickey, US Army Colonel, Retired, a Senior Military Advisor to the Senate Armed Services Committee and Leader of Operation Red Dawn, the US military effort that captured Saddam Hussein near Tikrit, Iraq in 2003
Mr. Hickey has a deep understanding of the international landscape, and extensive knowledge of current political and global security issues. His "boots on the ground" experience will offer real insights into the opportunities and pitfalls we face as a nation, and a methodology for evaluating global events.
Tuesday, September 26, 2017 from 12:00-1:30 pm in Costa Mesa, California.
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New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we provide institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
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