IMPACTfolio - 2nd Quarter 2018 Newsletter

Trade Wars and Brexit and Interest Rates…. Oh my!  Economic uncertainties have seemingly been a steady constant over the past couple years; however, at each turn the market, by and large, has been able to shrug them off.  For this reason, it remains important, more so now than ever, to have an operating system to navigate these markets.  This is no different than using GPS (i.e., Google Maps or Waze) to navigate your way to the beach, shore, mountains, or lake this summer.  A GPS is designed to guide you to your destination in the most efficient way possible.  With increased traffic on the highways in the summer months, this means that sometimes you will be presented with a different route than you are used to, or you might be guided off the highway to avoid an accident or heavy congestion.

With that said, the month of June is typically a weak month for the market.  As a matter of fact, June is ranked 10th out of 12 months in terms of performance for the S&P 500 Index over the past 67 years with an average return of -0.03%.  June 2018 bucked this trend, and the S&P 500 was able to post a gain of 0.48% for the month, bringing the year-to-date return for the S&P 500 to 2.65% (thru June 30th) on a total return basis.  While the Value oriented sectors, like Staples, Real Estate, and Utilities all rallied in the month of June, these areas continue to lag the Growth oriented sectors as of the end of the second quarter.

As we look at the Relative Strength Chart below, or our GPS for the markets, US Equity continues to be the top ranked asset class.  We believe there are no winners in a Trade War and hope to see agreements made and tariffs dropped by year end.  According to the Relative Strength Chart, International Equities are losing steam more than Domestic Equities, International Equities have lost 34 points and Domestic Equities have gained 1 point YTD.  Is the market telling us International Equities are losing the Trade War?  Commodities have gained 51 points primarily driven by the increasing price of oil.  We are watching this closely, as fuel costs increase we have less money to spend on goods and services.

Strategy Updates

Core Strategies - Strategic allocations (Conservative, Moderate and Aggressive) that use low-cost Exchange-Traded Funds (ETFs).  They are managed to a specific allocation target and rebalance periodically to ensure that the allocation remains on track.

With Domestic and International Equites in the #1 and #2 spots according to our ranking system we are allowing the equity portion of these portfolios to float higher.  Our indicators are not telling us to reduce equity exposure at this time.

Tactical Strategies – We manage an individual stock strategy and an ETF strategy that use tools to respond to changing market conditions. We look for signs of relative strength as a way of identifying good buying opportunities and, conversely, we aim to sell when we determine signs of relative weakness. 

The stock strategy has not seen much turnover yet this year, Gap, Inc. and Caterpillar Inc, both triggered our sell rules and were replaced with Intel Corp. and Tiffany & Company, respectively.  The Tactical ETF strategy is currently overweight equities (99% equities and 1% cash) with an emphasis on low carbon-emitting companies and a tilt toward growth vs value stocks.

If you would like to become more familiar with our investment or financial planning process, please contact me at your convenience.

To our clients, your 2nd quarter summary statements are now available in the Vault on your personal financial planning web site.

Scott Arnold, CFP®, has been in the financial services industry since 1998.  He is a co-founder of IMPACTfolio, a wealth management firm that specializes in IMPACT investing and holistic financial planning for one flat-fee.

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