For this commentary, I thought I’d bring up a recent exchange I had with a long-time, dear client of ours. She had asked, “I keep hearing everyone talking about how if we would have done nothing with our investments over the past month, we should be back to where we were last fall, or even at the start of the year. I’m just wondering what your thoughts are as to why we aren’t back to where we were at the beginning of the year?”
I thought this was such a good question and likely even one you may have asked yourself that I wanted to make this the point of my remarks this month.
If you read our newsletter last month, in which I spoke about how our Global View strategies had hit a long-term Sell signal back on April 3rd (meaning those strategies had gone on “defense” and went into short-term treasuries because of the technical damage already experienced that it warranted those strategies make a defensive move). This was then offset by other strategies that stayed in the market or even remained ‘leveraged’ throughout. Interestingly, we were talking about why those other strategies have stayed in the market, which then contributed to the continued swings up or down. Well, if you had fallen asleep like Rip Van Winkle these past couple of months and woke up you would have thought nothing had happened, even though we saw tremendous volatility in March and April. Yet before we got to where we are today, we saw the S&P hit correction territory while the Nasdaq hit Bear Market territory as we saw declines of over 20% in a short 8 weeks. Then as trade deals occurred and the concerns around the trade war eased following the May 12th announcement that the U.S. and China had agreed to reduce tariffs on most goods, the market indices continued their ‘surprisingly’ rapid reversal, seeing 4 extraordinary “Up” weeks just in the last 6 weeks, which was an about-face compared to the fear-inducing down days we saw shortly after Liberation Day. This rapid recovery and the fact that some strategies within your portfolio are still on Long-Term Defense explain why your account(s) still may not have fully recovered.
In retrospect, should the strategies have gone defense? Yes, because it was what the data showed at the time. Looking back now – knowing the markets would have such a rapid climb back (looking more like a whipsaw, when markets move sharply in one direction then reverse with equal speed), then perhaps not. But this defensive move was in some way ‘insurance’, in case the S&P had declined further into a Bear Market, then at least that portion of your portfolio was already out. This explains why even though you may have seen improvement, it’s not quite where your account was (yet). In my opinion, that’s the operative term, as our Global View strategies are getting very near to triggering a long-term “Buy” signal, which means that if this up-trend continues, once the rest of your portfolio gets back into the market, you should see your accounts catch back up and possibly even more, especially if your portfolio includes leveraged strategies that help to seek ‘alpha’.
So, here was my answer to my client:
It’s both related to time and when the rest of your portfolio (as dictated by the data) gets back into the market. The 3rd piece of advice I gave was more of a reminder: looking at things only ‘in the short term’ can at times really distort things, as the markets can either be amazingly good or they can be bad. Therefore, my suggestion is to allow the strategies and the various managers to do their job and give it time.
If you have any concerns, please feel free to reach out. Otherwise, we’ll let the managers manage and navigate this market, no matter which direction it decides to go from here. Until our next commentary, have a nice Memorial Holiday weekend and a good start to your Summer.
