WBI Intelligence

By Steven Van Solkema – Chief Investment Officer and Co-Portfolio Manager

Another Roaring 20’s Ahead?

Welcome to a new decade. The last ten years were amazing in many ways and certain things still look pretty impressive right now. The question on everyone’s mind is when will the party end and how will we know it’s time to leave before it’s too late?  Last century’s “Roaring 20’s” started off exceptionally well as the Dow Jones Industrial Average Index grew over 220%, or approximately 13% each year on an annualized basis. Then, the music stopped playing and the 1929 crash devastated the country for years to come. After an elongated bull market run, the DJIA Index lost more than -87% between September of 1929 and June of 1932. Assuming you bought and held the DJIA Index starting in 1920, you would have experienced those initial tremendous gains, but eventually you would have lost -60% of your original investment by June of 1932, or approximately -7% each year on an annualized basis.

Don’t worry, I am not suggesting our Roaring 20’s are going to end as tragically as they did back then. And I certainly hope that we too will experience continued economic growth and widespread prosperity for as long as possible in this coming decade. Even though we have already had a substantially long bull market run, there are some fresh indications that suggest financial markets still have more upside potential. Last year, a recession appeared relatively imminent, but now it might be avoided for some time to come. On the other side, there still are some areas of concern that we are watching very closely.

Whenever the party does come to an end, it is extremely unlikely that we will experience an -87% loss in wealth like that which occurred last century. However, it is still wise to recall the more recent S&P 500 Index’s -49% loss that shocked investors between 2000 and 2002. Similarly, we need to remember that investors who bought passive index funds in late 2007 because they wanted to enjoy the final hours of the last bull market party suffered -56% losses over the next two years. Further, a $100 investment made in late 2007 caused a loss of wealth until six years later in 2013 when it was finally worth $100 again. 

Looking ahead over the next six to twelve months, WBI Investments is currently focused on monitoring signs that the market is still healthy so we can help our investors continue to grow their wealth. However, we also remain focused on any signs the party might be coming to an end. Six years is a long time to wait to simply erase the damage of significant losses and break even, so, our goal is to capture as much upside as possible while working to avoid any catastrophic losses that may be on the horizon.

MARKETS IN REVIEW

Although the third quarter of 2019 was filled with volatility and concern, most market indices produced solid returns in the fourth quarter to round out the year. Looking only at the S&P 500 Index for a moment, the third quarter’s 1.19% return was followed by an 8.53% return in the fourth quarter. New market highs were achieved, and investors celebrated a 29% return for the year while easily forgetting the -20% decline in Q4 of 2018.

Similar results were achieved in large capitalization companies, represented by the Russell 1000, as well as small and mid-sized capitalization companies represented by the Russell 2000.  Volatility seemed to disappear as the markets pushed higher. The S&P 500 didn’t have more than a 1% up or down daily move since mid-October. As a result of lower volatility and bullish equity markets, U.S. fixed income assets didn’t perform quite as well in Q4 as they did in Q3 with the Bloomberg Barclays U.S. Aggregate index returning just 0.18% in Q4 vs. its 2.27% return in Q3.

Trade Deal

As we look forward, it is wise for us to first recall the way that 2018 ended. The Federal Reserve was raising rates, there was a government shutdown, and increasing tariffs on both Chinese and U.S. products were creating a great deal of uncertainty and investor pessimism. Once again, this resulted in significant volatility and close to a bear market as the S&P 500 sank almost 20% in the fourth quarter. In contrast, 2019 came to a close with a great deal of investor optimism demonstrated by a slow and steady grind upwards that was certainly due in large part to discussions surrounding an initial U.S. – China trade deal. The trade war is far from over and remains one of the core geo-political risks on the horizon. However, the “Phase One” trade deal that was officially signed on January 15 has helped quell investor fears for the moment.

For now, markets are calmed by the belief that a “Phase Two” deal is already in the works. Hopefully that is the case and we will continue to see progress which results in the removal of tariffs on both sides, increased intellectual property protections, and net growth in U.S. exports. However, any breakdown in talks that causes a re-escalation in U.S. – China trade tensions would materially impact the markets.  We are cautiously optimistic but remain aware that there are still significant differences between what each side perceives as a successful resolution.

The current “cease-fire” should help the markets for now, but a dramatic turn of events is always possible.  Furthermore, we recognize that politicians are utilizing social media even more frequently to announce or at least threaten the next battle move and these posts have the tendency to move markets violently and without any warning. That said, given we are in an election year now, there is a greater likelihood that political interest is focused more on keeping markets marching higher than throwing more Twitter “grenades”.

Reversal of Federal Reserve Policy and Likelihood of Recession

After raising rates nine times between 2015 through the end of 2018, the markets rejoiced when the Federal Reserve acknowledged last year that they might have gone too far. Chairman Powell noted that crosscurrents had emerged in the economic growth outlook and reaffirmed that the Fed was monitoring the implications of these developments and would act as appropriate to sustain the economic expansion.

The Fed proceeded to lower its primary target interest rate three times throughout 2019. However, during the last meeting, it seemed clear that no further loosening of monetary policy would occur in the foreseeable future unless something new showed signs of further deterioration.

Although Fed speeches and monetary policy changes were another key factor leading to positive market returns last year, there is still a question as to whether interest rates were lowered enough, and in time, to avoid a recession. We might not know the answer to that question for a while yet, but it does appear that a recession is not as imminent as was thought during certain periods of last year.

Historically, a yield curve inversion has been a good predictor for an economic recession. Such yield curve inversions have preceded almost every recession over the past eighty years, although the inversion itself does not mean the recession is imminent.  An inverted yield curve occurs when the yields on short-term fixed income securities are higher than the yields on long-term fixed income securities. This is not the normal situation because typically, investors will demand more return for a ten-year investment, for example, than the return they will demand for a three-month investment. However, when investors perceive that risk in the near term is relatively greater, they will demand more return for the short-term investment and prefer to invest in long-term investments even though they will earn less return.

In the chart above, we have plotted the yield spread, or difference in returns, between the three-month U.S. Treasury Bill and the ten-year U.S. Treasury Note. Typically, the number is positive when 10-year yields are higher than 3-month yields.  As you will see, the spread became negative (or inverted) in 2000, again in 2006/2007, and finally in 2019. The dark gray bars on the chart indicate the timing of the two recessions that followed in 2001 and 2008.

We highlight that the yield curve is no longer inverted as it was for a large part of 2019. This has alleviated some of the market concern that a recession is imminent.  However, a common misconception is that it is the inversion itself that signals a recession is coming. Rather, it is typically the reversal of the yield curve inversion (which has now happened) that signals a recession is coming. However, the time between when the yield curve reverses its inversion and the beginning of a recession has historically been difficult to predict. 

Furthermore, there is an argument to be made that the Fed’s actions in 2019 may have pushed the likelihood of a recession further off into the distance somewhat. It is possible that they successfully engineered an extension of the current economic expansion that could still last many months if not years and that this most recent yield curve inversion might even be an outlier when compared to the past 80 years of historical precedence. It is also possible that we may even need to experience another yield curve inversion before the next recession occurs this time. However, recession is still on the minds of many as “fear of an economic decline topped the list of [U.S. Chief Executive Officers’] concerns going into 2020, according to a survey from the Conference Board, a business research group.”That said, even if a recession does lie ahead, the good news for investors is that typically during the period between a yield curve inversion and the actual economic downturn, equity markets still perform quite well.

Corporate Earnings

Similar to discussions about an economic recession, when reviewing corporate earnings and what we might see in 2020, we can find reasons to be both optimistic and pessimistic at the same time.

In the chart below, we plot the year-over-year change in corporate earnings for the S&P 500 as reported by FactSet. At the time of publication, actual earnings data for Q4 of 2019 is just starting to come in. The estimate for Q4 was -1.5% at the end of 2019.  If that materializes, it would mark the first time the S&P 500 Index reported four straight quarters of year-over-year earnings declines since 2015-2016. This would extend the earnings recession, typically defined as two straight quarters of declines, that began last year. Please note that an earnings recession is not the same thing as a full-blown economic recession which is defined by two successive quarters of decline in the gross domestic product or GDP (the last one of those is highlighted in dark gray below).

Still, earnings recessions are certainly not indicators of stability and progressive economic growth, so, another negative quarter would be taken poorly by investors. However, markets also recognize that there is a common pattern of earnings estimates being overly conservative. Frequently, actual earnings will come in at least 1 to 2% higher than what was originally estimated. One analyst recently noted that “in the prior 31 quarters, actual results outpaced initial forecasts by an average of 3.8%”. For that reason, although investors might be slightly concerned with current estimates and certain data coming in at this point, there are those out there predicting this quarter will actually mark the end of the 2019 earnings recession. Historical precedence suggests this could be the case. We can also look back to the 2015 – 2016 earnings recession and note that although things looked pretty gloomy back then, it was just a pause in the expansion that eventually reversed itself sending the market higher after a temporary period of volatility and fear.

It is possible that lower interest rates and reduced concern about trade wars and other geo-political risks may lead to a rebound in corporate earnings and help the U.S. continue to enjoy its longest post-war expansion for some time to come.  However, there are still some cracks in the foundation.  Morgan Stanley found that earnings are contracting for a growing share of S&P 500 companies. Specifically, they determined that “more than a third of the S&P 500 companies have posted a year-over-year decline in earnings in 2019 [and] the last time the share of companies posting contracting earnings was that high [was in] 2009, 2008 and 2002, all periods when the broader economy, plus the stock market, were in decline”.

Manufacturing, Services, and the Consumer

Some signs of slowing domestic demand continued through the rest of 2019. The Institute for Supply Management (ISM) reported that its manufacturing index came in much weaker than expected, falling to 47.2 in December which is the lowest reading in a decade. Note that any reading below 50 is considered a sign of contraction while any reading above 50 is considered a sign of expansion or business growth. This index is based on a survey of purchasing managers from more than 300 manufacturing firms and helps indicate the amount of demand and economic activity in U.S. factories. However, this reading, along with other signs of manufacturing weakness, is believed to be largely the result of the U.S. – China trade uncertainty. In other words, assuming terms of the Phase One deal are met over time and further positive negotiations take place, we could see a rebound in manufacturing activity as purchasing managers regain confidence.

Even so, activity in the U.S. services sector is already telling a different story.  The ISM Non-Manufacturing index, which tracks the services sector, signaled a better-than-expected expansion as it climbed back up to 55 from its 2019 low of 52.6. This gave the markets continued confidence that the economic expansion is not over yet and should likely see a further boost assuming there is a continued alleviation of trade concerns.

Another indicator of economic strength is coming from the consumer. According to the Conference Board’s latest Consumer Confidence Report, U.S. consumer confidence “neared a historic high at 122 points on a scale of 54 to 138 points” in the fourth quarter of 2019. The report continued to note that “a strong labor market with low unemployment and rising wages have kept Americans spending through 2019.” Although the report was positive, it did highlight that looking forward, slowing employment growth, slowing wage growth, and potential layoffs in the manufacturing sector could result in the consumer spending less in the coming year.

Looking Ahead

So, even though my wife is already shopping for her own “flapper dress”, the 2020’s probably won’t “roar” as much as the 1920’s did. At least not to the same degree where there were nine straight years of significant economic growth and widespread prosperity before the party came to a brutal end.  But that doesn’t mean we won’t see several more months or even years of expansion before another recession comes to bear.

Our base case scenario suggests that new positive economic data, easier monetary policy and less geo-political uncertainty will likely help keep the markets grinding higher for at least the first half of the year. The persistent trade tensions, slowing global growth, damage from negative interest rates and fears of imminent recession that plagued much of 2019 seem to be alleviated for the moment.  U.S. consumers still have confidence, inflation is on target, the economy is still expanding, stocks continue to hit all-time highs, and unemployment is the lowest it’s been in 50 years.

However, even if the market does continue to climb, downside risk potential is probably higher now than it was in 2019. There is a clear possibility that China fails to deliver on the terms of the Phase One trade deal.  Alternatively, negotiations could break down with regards to any Phase Two deal and a re-escalation of tensions could easily occur. China might leverage perceived political weakness due to the impeachment trial or upcoming elections and decide to change the rules of engagement at any time.  Or, President Trump might be the source of new geo-political tensions with China or other countries as he looks to solidify his position ahead of the election.

If we assume that history will continue to repeat itself, then the fact that the 2019 yield curve inversion has reversed suggests that a recession is definitely on the horizon although it could still be more than a year off.  And it is possible that the monetary policy adjustments by the Fed last year might have been enough to push it out even further.

Corporate earnings might rebound this quarter in contrast to original forecasts and the manufacturing sector might start to grow again assuming trade tensions do not resurface. But many believe that the market is currently “priced for perfection”. In other words, the market bulls are still enjoying the party, but any signs of weakness or new uncertainty might cause a violent reaction to the downside.

Here at WBI, we focus on using a portfolio management approach that works to capture as much upside as possible but is simultaneously prepared to protect investor capital when the market begins to show signs of deterioration. Our quantitative models and disciplined investment processes have helped us manage risk to capital for institutions and private investors for over 30 years. We target competitive long-term returns with substantially less risk to capital as we work to avoid catastrophic losses, because few investors can afford to wait over six years to simply break even.

We appreciate your continued faith in our approach and wish you all the best in the New Year.

-Steven Van Solkema

Click here to view the full pdf.

IMPORTANT INFORMATION

Past performance does not guarantee future results. The views presented are those of Steven Van Solkema and should not be construed as personalized investment advice or a solicitation to purchase or sell securities referenced in the Market Commentary. All economic and performance information is historical and not indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product referred to directly or indirectly in this newsletter, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from WBI Investments or from any other investment professional. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with WBI Investments or the professional advisor of your choosing. All information, including that used to compile charts, is obtained from sources believed to be reliable, but WBI Investments does not guarantee its reliability. Sources for price and index information: Bloomberg (unless otherwise indicated). WBI Investments pays a subscription fee for the use of this and other investment and research tools. WBI Investments and Bloomberg are not affiliated companies.

Our current disclosure statement as set forth on Form ADV Part 2 is available for your review upon request.

WBI managed accounts may own assets and follow investment strategies which cause them to differ materially from the composition and performance of the indices or benchmarks shown on performance or other reports. Because the strategies used in the accounts or portfolios involve active management of a potentially wide range of assets, no widely recognized benchmark is likely to be representative of the performance of any managed account. Widely known indices and/or market indices are shown simply as a reference to familiar investment benchmarks, not because they are, or are likely to become, representative of past or expected managed account performance. Additional risk is associated with international investing, such as currency fluctuation, political and economic uncertainty. 

Annualized Rate of Return is the return on an investment over a period other than one year (such as one quarter or two years) multiplied or divided to give a comparable one-year return. Dow Jones Industrial Average (DJIA or “The Dow”) is a price-weighted average of 30 of the largest and most significant blue-chip U.S. companies. S&P 500 Index is a float-market-cap-weighted average of 500 large-cap U.S. companies in all major sectors. NASDAQ Composite Index (NASDAQ) is a market-value weighted index of all common stocks listed on NASDAQ. Russell 3000 Index is a float-adjusted market-cap weighted index that includes 3,000 stocks and covers 98% of the U.S. equity investable universe. Russell 1000 Index is a float-adjusted market-cap weighted index that includes the largest 1,000 stocks by market-cap of the Russell 3000 Index. Russell 2000 Index is a float-adjusted market-cap weighted index that includes the smallest 2,000 stocks by market-cap of the Russell 3000 Index. Russell 3000 Value TR Index uses the value characteristic book-to-price ratio to create a total return style index based upon the Russell 3000 which includes the performance effect of the dividends paid by stocks in the index. Russell 1000 Value TR Index uses the value characteristic book-to-price ratio to create a total return style index based upon the Russell 1000 which includes the performance effect of the dividends paid by stocks in the index. Russell 2000 Value TR Index uses the value characteristic book-to-price ratio to create a total return style index based upon the Russell 2000 which includes the performance effect of the dividends paid by stocks in the index. Barclays U.S. Aggregate TR Index is calculated based on the U.S. dollar denominated, investment grade fixed-rate taxable bond market including treasury, government-related, corporate, MBS, ABS and CMBS debt, and includes the performance effect of income earned by securities in the index. Barclays Global Aggregate TR Index is calculated based on global investment grade debt from twenty-four local currency markets including treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging market issuers, and includes the performance effect of income earned by securities in the index.

You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format to any third party without the express written consent of WBI Investments, Inc. 

This Market Commentary is a publication of WBI Investments^® © 2020.

By Steven Van Solkema – Chief Investment Officer and Co-Portfolio Manager

I have probably used the word lemming at least fifty times when describing a group of market participants that appear to be largely responsible for some significant price action and volatility during the past quarter.  Given such frequent use, I suddenly felt the need to do a bit of research on the poor animal before I continued to abuse the metaphor.  These small rodents are actually quite cute (assuming you think gerbils are cute).  They travel in large herds and have periodic enormous population booms.  Due to this population growth, various misconceptions and myths have developed over the centuries.  One sixteenth century geographer believed they would suddenly generate in the atmosphere and fall out of the sky.  Others believed they would spontaneously explode when the population grew too large.  And of course, the most famous misinterpretation is that lemmings blindly follow the herd to commit mass suicide by leaping off cliffs into the sea with the instinctual goal of reducing their population size.  The truth appears to be that occasionally, lemming herds do die when swimming too far in search of new territory, but not with the dramatic horror of a deliberate mass suicide.

OK, research and fact check complete.  I am still resolute in my belief we are currently seeing large herds of investors blindly following the crowd simply because that’s where everyone is going.  They do not evaluate the quality of an investment but collectively run forward assuming everyone must know something that they too should know.  These investors violently change direction when they see the herd heading somewhere new (causing enormous swings in the market).  Unfortunately, just like lemmings, although no investor deliberately jumps off the cliff, this type of human behavior can lead to catastrophic portfolio losses.

Our goal here at WBI Investments is to help clients avoid becoming part of the herd.  We are constantly searching for better investment opportunities with quality fundamentals.  We do not blindly follow a crowd that is driven by psychological forces and the fear of missing out.  Furthermore, we focus on protecting investor capital and helping our clients avoid significant losses when the herd keeps running straight towards those dangerous cliffs ahead.

MARKETS IN REVIEW

The third quarter of 2019 was eerily similar to the second quarter in many ways.  Looking only at the S&P 500 Index for a moment, May produced a significant -6.58% decline followed by a June rebound of 6.89%.  During the third quarter, an August decline was sandwiched between two slightly positive months.  The result was a 1.19% return for the quarter and highlights once more that this year’s return comes almost entirely from the first quarter and especially the month of January.  Volatility continued throughout the third quarter as new trade tariffs and Fed concerns set up a rapid 6% decline in the beginning of August followed by three failed attempts to rally back higher.

Although mainstream media continues to focus on relatively attractive year to date returns, one must remember that on a trailing 12-month basis, the S&P 500 is up only 2.15% since last September.  Pushing the point even further, the S&P 500 is up only 3.62% since a peak reached in January of 2018.  Looking back over those past 612 days, the S&P 500 was negative, or below that January 2018 watermark, almost 70% of the time.  Indices focused on stocks with strong value characteristics have performed even worse.  Large company value stocks, as represented by the Russell 1000 Value Total Return Index, are up only 1.98% since that January 2018 peak.  Small and mid-sized company (“SMID”) value stocks, as represented by the Russell 2000 Value Total Return Index, are actually down -4.99%, and on a trailing 12-month basis, they are down -8.24%.  In short, equity markets have certainly demonstrated periods of high volatility for almost two years now, but they really haven’t moved higher to the degree that most people assume.

In contrast, lower interest rates and a flight to quality helped fixed income assets perform well with the Bloomberg Barclays U.S. Aggregate index returning 2.27% in Q3 and 10.30% over the past 12 months.

The Market’s Wild Ride

An increase in volatility combined with the lack of a sustained trend continued to make this quarter quite challenging.  The markets were constantly at the mercy of rapid fire “tweets” and other news fragments, many of which were later revealed as fake or at least questionable.  But that didn’t stop the lemmings from running full speed ahead in one direction or another.  The result was sudden spasms and market movements that diminished the efficacy of value-added money management. 

Looking at the performance of the S&P 500 during the quarter in the chart below, we can almost see the anxious herd making convictionless trades as markets were affected more by random psychological forces rather than fundamentals.  The quarter started with the firm expectation that the Federal Reserve would lower interest rates for the first time since the Great Recession at its July meeting.  They did cut the fed funds rate by 25 basis points (a basis point is 1/100^th of one percent), but the market was very unhappy with the surrounding commentary.  Fed Chairman Powell declared that this cut was a “midcycle adjustment to policy” rather than suggest this was the beginning of a new cycle of rate cutting.  The market sold off significantly as it became concerned that getting what you want isn’t good enough.

Things got worse from there as one can see on the chart.  On August 1^st, President Trump announced new 10% trade tariffs on the remaining $250 billion of Chinese goods that were not yet taxed to begin on September 1^st.  The week of July 29 through August 2^nd became the worst week of 2019 as the S&P 500 lost almost 100 points or 3% of its value.  On August 5^th, another huge selloff occurred as China hit back with what many viewed as “currency manipulation” and threats that it would suspend imports of U.S. agricultural products.  On the same day, the ISM Non-Manufacturing Index reported a decline to a three-year low of 53.7.  This suggested the weakness already noted in the export-focused manufacturing sector might be spreading into the country’s much larger services sector.

The rest of August was a full-blown roller coaster ride.  Markets were happy one day as some trade tariffs were delayed until December 1^st but terrified the next day as protests in Hong Kong became more violent.  More yield curve inversions startled many market participants who suddenly felt that the next recession was imminent.  Weaker than forecast Chinese retail sales and industrial output, signs of German economic contraction and other gloomy global data sent investors running for cover worldwide.  But then Fed officials or President Trump would say something that sent the market rocketing higher once again.

Fear and Anxiety

Nobel-Prize winning economist Robert Shiller recently offered his opinion on when the next recession might arrive and what it might look like. However, he was mostly focused on how human behavior might accelerate or even exacerbate the recession. In a New York Times article, he reminded readers that in 1933, during perhaps the worst part of the Great Depression, President Roosevelt famously tried to bring calm by saying, “The only thing we have to fear is fear itself.” Further, he pointed out how President Bush echoed the sentiment during the Great Recession in 2008 by stating, “Anxiety can feed anxiety.”

Shiller went on to remind us that typically, when people become concerned that something bad might happen, they adjust their behavior in an attempt to prepare for the worst. Unfortunately, their adjusted behavior might bring “the worst” to life faster than if they were never fearful or anxious in the first place. For example, if consumers are concerned about potentially losing their jobs, they will begin to save rather than spend their money, and this will decrease overall demand for goods in the economy. Similarly, if businesses are concerned about a lack of demand, they might decide that the prudent course of action is to lay-off employees and stop investing in new business lines. Unfortunately, these actions will generally increase the probability of the recession that is feared by those who are trying to avoid it.

Fear and anxiety cause similar problems directly in the financial markets. Investors often panic in lemming-like herds. Sharp market declines cause nervous traders to sell securities because they are fearful of further declines. However, when a critical mass becomes anxious and begins to sell more rapidly, further massive declines are all but guaranteed.

With that in mind, according to Bank of America Merrill Lynch strategists, “investors haven’t been this bearish since the collapse of Lehman Brothers … [and] over the past six months, money market funds attracted $322 billion of inflows, the largest flight to safe assets since the second half of 2008.” In other words, despite falling interest rates, investors are selling securities and raising their cash holdings at a rapid pace.

The opposite is true as well though. When fear and anxiety are alleviated, we see large groups of investors blindly piling back into the market as fast as possible. As mentioned above, this type of fearful selling followed by exuberant buying is what caused so much volatility and the sawtooth chart pattern that whipsawed markets throughout much of the third quarter.

Be Smart and Don’t Join the Herd

Sometimes it seems like there are almost countless issues affecting the markets right now.  Persistent trade tensions, slowing global growth, recession indicators flashing code red, Brexit, negative interest rates, and an impeachment investigation are just some of the hot topics making markets nervous every day.  On the other side, U.S. consumers still have confidence, inflation is on target, the economy is still expanding, stocks are near all-time highs, and unemployment is the lowest it’s been in 50 years.

As a quick aside on that last observation, I do like to highlight although it’s impressive that December 1969 was the last time unemployment was this low, a recession began only one month later and within a year, the unemployment rate grew from 3.5% to 6.1%.

But my real point here is that investors are currently dealing with a slew of both positive and negative news stories, and, it’s not always clear whether the news is good or bad.  The result is a volatile market in which anxious investors are either chasing new highs or running for the exits.  They are not paying attention to fundamental value and are motivated instead by the fear of missing out and the comfort that they are part of the herd.  The problem is that no investor has the ability to time the market perfectly.  So, if you are constantly switching direction trying to keep up with the latest news blip, you are going to find yourself buying high and selling low over and over again.

Unfortunate investors who desperately try to keep up with the herd probably won’t spontaneously explode like lemming mythology, but it’s very possible they will find themselves falling off a proverbial cliff at some point and losing a significant amount of wealth.

Here at WBI, we focus on using a portfolio management approach that helps our clients avoid becoming part of the herd.  Our quantitative models and disciplined investment processes have helped us manage risk to capital for institutions and private investors for over 30 years.  Our goal is to see clearly through the confusion of the masses and search for better investment opportunities with quality fundamentals.  We do not blindly follow a crowd that is driven by psychological forces.  Rather, we target competitive long-term returns with substantially less risk to protect capital and avoid catastrophic losses that may be on the horizon.

-Steven Van Solkema

Click here to view the full pdf.

IMPORTANT INFORMATION

Past performance does not guarantee future results. The views presented are those of Steven Van Solkema and should not be construed as personalized investment advice or a solicitation to purchase or sell securities referenced in the Market Commentary. All economic and performance information is historical and not indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product referred to directly or indirectly in this newsletter, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from WBI Investments or from any other investment professional. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with WBI Investments or the professional advisor of your choosing. All information, including that used to compile charts, is obtained from sources believed to be reliable, but WBI Investments does not guarantee its reliability. Sources for price and index information: Bloomberg (unless otherwise indicated). WBI Investments pays a subscription fee for the use of this and other investment and research tools. WBI Investments and Bloomberg are not affiliated companies.

Our current disclosure statement as set forth on Form ADV Part 2 is available for your review upon request.

WBI managed accounts may own assets and follow investment strategies which cause them to differ materially from the composition and performance of the indices or benchmarks shown on performance or other reports. Because the strategies used in the accounts or portfolios involve active management of a potentially wide range of assets, no widely recognized benchmark is likely to be representative of the performance of any managed account. Widely known indices and/or market indices are shown simply as a reference to familiar investment benchmarks, not because they are, or are likely to become, representative of past or expected managed account performance. Additional risk is associated with international investing, such as currency fluctuation, political and economic uncertainty. 

Dow Jones Industrial Average (DJIA or “The Dow”) is a price-weighted average of 30 of the largest and most significant blue-chip U.S. companies. S&P 500 Index is a float-market-cap-weighted average of 500 large-cap U.S. companies in all major sectors. NASDAQ Composite Index (NASDAQ) is a market-value weighted index of all common stocks listed on NASDAQ. Russell 3000 Index is a float-adjusted market-cap weighted index that includes 3,000 stocks and covers 98% of the U.S. equity investable universe. Russell 1000 Index is a float-adjusted market-cap weighted index that includes the largest 1,000 stocks by market-cap of the Russell 3000 Index. Russell 2000 Index is a float-adjusted market-cap weighted index that includes the smallest 2,000 stocks by market-cap of the Russell 3000 Index. Russell 3000 Value TR Index uses the value characteristic book-to-price ratio to create a total return style index based upon the Russell 3000 which includes the performance effect of the dividends paid by stocks in the index. Russell 1000 Value TR Index uses the value characteristic book-to-price ratio to create a total return style index based upon the Russell 1000 which includes the performance effect of the dividends paid by stocks in the index. Russell 2000 Value TR Index uses the value characteristic book-to-price ratio to create a total return style index based upon the Russell 2000 which includes the performance effect of the dividends paid by stocks in the index. Barclays U.S. Aggregate TR Index is calculated based on the U.S. dollar denominated, investment grade fixed-rate taxable bond market including treasury, government-related, corporate, MBS, ABS and CMBS debt, and includes the performance effect of income earned by securities in the index. Barclays Global Aggregate TR Index is calculated based on global investment grade debt from twenty-four local currency markets including treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging market issuers, and includes the performance effect of income earned by securities in the index.

You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format to any third party without the express written consent of WBI Investments, Inc. 

This Market Commentary is a publication of WBI Investments^® © 2019