Welcome to our active management update on the market
I have repeatedly mentioned that the underpinnings of the economy are still strong and often overlooked when the media focuses on market volatility—not what causes it and what it does not impact in the big picture. Friday (4/27) I heard news about the expectation of a treaty between the Koreas. This would be quite an event for the entire Korean peninsula and likely the surrounding economies.
Following that, I heard about first-quarter corporate earnings—how a record number of companies have beat expectations and a staggering number are raising their earnings expectations for the balance of 2018. So, I wonder how many people are thinking about the amount of economic good news there is supporting the two-plus-year uptrend that has been going on in stocks despite the recent correction. This is just further evidence that the underpinnings of the market remain intact despite the market’s correction and the focus on distracting headlines.
Growing interest in alternatives: The following Bloomberg graph illustrates the number of shares outstanding in the IAU gold price tracking ETF. This graph covers the past 12 months and shows a fairly steady growth in shares outstanding and, therefore, a growing interest in gold.
The following FastTrack graph illustrates the domestic stocks (SPY), emerging-market stocks (EEM), commodities (Dow Jones UBS Commodity Futures Index), and gold P.M. Fix (GD-PM). An interesting tie among these assets classes is that the strength in the economy is reflected in the strength in U.S. stocks (SPY), and the spreading of that strength to emerging-market economies is shown by the move higher in EEM. As economies grow, so does the demand for commodities, including gold. That strength has taken commodities in general up to an important overhead resistance level represented by the dashed lines. The up arrows near the end of 2015 draw attention to the frequent linkage between the trends of emerging-market economies and stocks and the commodity and hard-asset markets.
Should commodity and gold prices move above the illustrated resistance levels, the role of alternative asset classes in a portfolio will grow in importance as a diversifier and a return driver. Alternatives are a key part of Flexible Plan’s core, All-Terrain, and alternatives strategies—as well as some of our new Quantified Fee Credit (QFC) strategies.