New Year — Is Your Portfolio Ready?January 13, 2017
Happy New Year! We hope the holidays gave you an opportunity to relax and recharge.
With tax loss selling season behind us and the inauguration of a new administration ahead, investors have returned from vacation to a complicated backdrop. The Dow (DJIA) is pushing 20,000. The Fed raised rates in December and meets again later this month. Would portfolios benefit from a lower-risk approach or is it exactly the wrong time to reduce market exposure?
You have probably heard that attempting to time the market’s ups and downs is a losing strategy since the market’s “10 best days” tend to deliver a significant portion of its returns for the year.1 At this juncture, several factors point to good days on the horizon: Economic growth is improving, with Q3 GDP revised up to 3.5%, the fastest growth rate in 2 years.2 Consumer confidence recently registered its highest level since 2001.3 The relative strength index for the DJIA, traditionally believed to be in overbought territory at 70 and higher, crossed from the low 70s into the high 60s in December. While this development is considered a bearish indicator in the technical analyst’s textbook, history has seen it usher in a market rally in the majority of instances.4,5
In the confidence arena, the numbers reflect giddy anticipation of what the new administration could accomplish. The difference in economic expectations between November and December (9.5%) is the largest since October 2014.6 Great expectations for the economy and markets have been reinforced by respected investors and corporate leaders, from Jason Karp of $3.8 billion Tourbillon Capital Partners, who deems the election result “unequivocally positive for business” to J.P. Morgan CEO Jamie Dimon, who believes that “fixing corporate taxes, immigration, trade, all done properly will have fast results in America.”7
Other experts disagree. Jeff Gundlach of DoubleLine predicts a “bumpy ride” for markets.8 Kase Capital Management founder Whitney Tilson expects “a lot of volatility” when the president-elect who has exhibited “reckless behavior” takes office in January.9 Nor is Janus’s Bill Gross a believer: “Investors must drive with caution, understanding that higher deficits resulting from lower taxes raise interest rates and inflation, which in turn have the potential to produce lower earnings and P/E ratios.”
Agree or disagree with the incoming administration’s agenda, its ability to execute is an unknown, and uncertainty creates volatility. At Artivest, we speak to a lot of advisors and investors who have watched alternative investments surge in popularity over the past decade and feel as though they are “late” to researching and incorporating them in portfolios. We take a different view.
Volatility can create mispricings. Mispricings create opportunities for active managers, and private alternative investment professionals have a wide array of tools at their disposal for capitalizing on these opportunities. Additionally, certain alternative strategies can function as hedges, providing diversification that cushions the effects of market volatility on portfolios.
We look forward to what is sure to be a stimulating investment backdrop in 2017, and we welcome the opportunity to be helpful as you navigate it.
4. DJIA RSI chart from Yahoo Finance
7. Bloomberg.com. “Jamie Dimon on Trump, Taxes, and a U.S. Renaissance.” December 22, 2016.
The comments provided herein are a general market overview and do not constitute investment advice, are not predictive of any future market performance, and do not represent an offer to sell or a solicitation of an offer to buy any security. Similarly, this information is not intended to provide specific advice, recommendations, or projected returns.
Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other financial instrument or any derivative related to such securities or instruments (e.g., options, futures, warrants, and contracts for differences). This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person. Investors should seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.
“Artivest” refers to Artivest Holdings, Inc. and its affiliates, as the context requires. All brokerage services are provided by Artivest Brokerage, LLC, an SEC registered broker dealer and member FINRA/SIPC.
© 2017 Artivest Holdings, Inc., All Rights Reserved