Cool Charts Explained:  Market Returns:

I hope that you and your family had a great Labor Day weekend!

I know that I did.  I celebrated the birth of the Employee Retirement Income Security Act (ERISA). 

ERISA turned 50 years old on September 2nd!

This law was very monumental, as it gave birth to the 401(k), which has changed the retirement industry completely. 

But I digress, another month has gone by and we saw another month of extreme volatility.

The month of August started off with the S&P 500 falling about 6% in the first week.  Then it has gone almost straight up from there and gained about 3% before the end of the month.

So, if we stick with our current patterns, I suspect we will see a market sell off after Labor Day.  Then after about a week or so of declines, we will see the market fight to hit new highs.

However, this pattern could be broken because “the professionals” go back to work after Labor Day. 

There is an old axiom in this business, that from Memorial Day through Labor Day the “professionals” don’t work too hard.  They go to the Hamptons and take the summers off.

So, I guess time will tell if the “professionals” will want to move the markets higher in September or if they plan on locking in some (or all) of their profits before the presidential election.

Either way, we will know soon.

One thing I know for sure is the volatility this year has wreaked havoc with our Semi-Tactical models (see “Current Allocations – Tactical Allocations” below for more information).  

The above “U.S. Market Barometer” is showing what we have experienced every month.  There is no consistency or market leader month after month.

Here it is easy to see that the Large Stocks did very well, while the small stocks lagged. 

It didn’t matter if you bought Large Value, Core or Growth.  They all did well!

The fact that Large Caps are doing well, regardless of the category, is usually a sign of risk coming out of the market.

However, as we already stated above, the “professionals” come back to work now. 

So, we will see if this will continue.

If I had to guess, I think some money is coming out of the riskier categories (like Small Cap stocks) and making its way to the “long” side of the bond market in preparation for the Fed cutting interest rates in September.

It’s all but a “done deal” for that to happen, as it would take something extreme for them not to cut.

The question is no longer “if” the Fed is going to cut interest rates in September, but “how much” they will cut.

We will know that answer in a couple of weeks.

The above S&P 500 chart is what we use to check our “technical” indicators.

Staying with our theme of an “inconsistent” market, you can see how the market keeps moving up, then down, then up. 

And then repeats.

I feel that this cycle will continue, but with quicker ups and downs as the election approaches.

The markets really don’t care who wins the presidential election.  They just want a clean and decisive winner in November as the markets hate uncertainty. 

So, if it looks like it will be a close race leading into November, then I fully expect that this volatility will continue.

My hope is that the elections will be very decisive for the House, Senate and Presidency.  If it is drawn out with court battles and uncertainty, then the stock market volatility will surely continue throughout the year.

PLAN CONFIDENCE MODEL UPDATES:

FUTURE CONTRIBUTIONS:

Future contributions are money that is added to your plan with every paycheck. 

We monitor the future contributions monthly and are looking to direct these monies into investments that we hope to be “on sale”. 

This will allow you to buy more shares in your portfolio. 

This month we are advising that you use the following:

·      Small Value

·      Small Blend

·      Ultrashort Bond

This is an optional feature in Plan Confidence and you may or may not receive Future Contribution advice.  Please discuss this with your advisor if you have any questions.

The exact amounts you should allocate depend on the model that you are using. 

These categories may or may not be available in your plan.  If they are not available in your plan, we will recommend the closest available asset class.  You can find all substitutions on your “Proxy Page” within your dashboard. 

Please log into your Participant Dashboard to see the exact allocations you should be using as of today.

CURRENT ALLOCATIONS  - STRATEGIC MODELS:

Our “Strategic Models” combine the benefits of asset allocation and “buy and hold” strategies.  These models rebalance quarterly back to their risk “targets” and remain fully invested through all market cycles. 

Our Strategic Models rebalance the first trading day of every quarter.

There are currently no changes to the Strategic Models

The last update was on July 1, 2024

The exact amounts you should allocate depend on the model that you are using. 

The categories we use may or may not be available in your plan. 

Please log into your Participant Dashboard to see the exact allocations you should be using as of today.

Our Strategic Models rebalanced on July 1st. 

You should have received an email at 9am EST letting you know to login to your Participant Dashboard to review the new advice. 

CURRENT ALLOCATIONS  - TACTICAL MODELS:

Current Allocations are the monies currently in your plan. 

Making changes to this money is known as a “rebalance”. 

Some plans have trading restrictions on how often you can rebalance the money in your plan.  Be sure to know your plan’s restrictions before implementing any strategies.

There are currently no changes to the Tactical Models

The last update was on August 5, 2024

Our “Tactical Models” combine the benefits of asset allocation and “momentum investing” strategies. 

These models rebalance periodically back to their risk “targets” and the targets can be changed at any time given the current market conditions. 

These models may go through periods of time while holding larger amounts of cash than the Strategic Models.

Our Tactical Models may rebalance on any given day. 

Please be sure to look for an email from support@planconfidence.com letting you know when to make changes. 

Also, be sure to keep our “push” notifications “on” if using our app.

The exact amounts you should allocate depend on the model that you are using. 

These categories may or may not be available in your plan. 

Please log into your Participant Dashboard to see the exact allocations you should be using as of today.

KEVIN’S COMMENTARY:

So far this year, the extreme market volatility has wreaked havoc on our Semi-Tactical Models.

Our models have been in an extreme “defensive” position since the last change on August 5th.  Unfortunately, shortly after the change, the markets trended upward. 

Very quickly.

We know our ongoing advice is primarily being used with employer sponsored plans (401(k), 403(b), TSP, etc).  This creates a challenge as most employer plans have “short term trading” restrictions. 

Thirty days is very common.  However, I have seen many plans that still have 60 and 90 day “restrictions”.  I’ve even seen one plan with a 270 day “hold”!

(If you have a plan with longer than 30-day trading restrictions, you may want to consider using our Strategic Models which rebalance every quarter).

This means that after our “tactical” models make a move, we need to hold the allocations for a minimum of 30 days.  This is why I like to call them “Semi-Tactical” Models. 

A “normal” tactical model can move in and out of positions quickly, without restrictions.  This is ideal for an IRA that can be managed by an adviser without short term trading issues.

If I were still managing money for my clients, I would use the MACD as my primary “buy/sell” strategy.  However, using this strategy would have resulted in 10 allocations changes this year.  That is way too many trades for the typical employer plan.

So, unfortunately, our Semi-Tactical models have not been working as well as I would have liked, due to the extreme market volatility and our “30 day” holds.

But, as I used to tell my clients when we were playing defense for a while, “I would rather come back in a year if I was wrong and tell you we could have made more money, than have to come back in a year and tell you we lost more money than anticipated”.

Model Portfolio Rationale:

Plan Confidence relies on the research and model construction from BlackRock, Inc. (one of the largest asset managers in the world). 

We use their “Target Allocation ETF Multi-Manager” model and “deconstruct” their allocations back to their asset categories so we can program the Plan Confidence™ Software. 

We then map those categories as closely as we can to the available investment options that you have in your plan. 

Below is an excerpt of their most recent Market Review.  Please let us know if you would like the full report.

Sticking with risk through turbulence

• Recent extreme market volatility shows the impact of sudden sentiment shifts and sharp position unwinds. We lean into risk and our high-conviction ideas.

• U.S. and Japanese stocks clawed back after a record three-day slide in Japan. The yen slipped back after surging to seven-month highs against the dollar.

• The July U.S. CPI is in focus. Recent inflation and jobs data stoked expectations of sharp rate cuts. We see cuts ahead but rates settling higher for longer.

We had warned risk sentiment shifts and stretched positioning could lead to market air pockets of volatility. That played out as the yen surged and Japanese stocks suffered their worst three-day stretch ever, forcing the Bank of Japan to walk back a hawkish policy shift. We stay overweight Japanese equities as a result. In the U.S., macro data shows a slowdown, not a recession, in our view. We keep our  overweight to U.S. stocks and are encouraged by upbeat tech earnings.

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This update has been written by Kevin T Clark, RF™.

All opinions expressed are those of the author and not that of Plan Confidence Corporation nor any other firm or individual.

Kevin T Clark, RF™ is the CEO and Co-founder of Plan Confidence Corporation. 

Kevin is an “ERISA Nerd” and one of only a hundred(ish) Dalbar certified Registered Fiduciaries (RF™) in the United States. 

He has been helping hard working Americans invest their money since 1997!

Plan Confidence Corporation is an SEC registered “internet only” investment firm specializing in providing advice to hard-working Americans investing in their employer’s retirement plans (401k, 403b, TSP, etc).  They have created proprietary software so hard-working Americans can receive professional, ongoing advice on their employer’s retirement plan from an adviser of their choosing!

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