Tactical Model Update 10/24/2022

On Friday, 10/21/2022 we received updated allocation changes for our Tactical Models. The changes being made are mostly due to the uncertainty of a Fed hell bent on battling inflation (regardless of the collateral damage), the uncertainty of the upcoming elections and the R word (recession).

At Plan Confidence, we use the same model allocations as the largest money manager in the world.

When they change, we change.

Below is a chart of all the changes we have made for Monday, October 24th.

We have removed the ticker symbols as only our paid customers get the exact allocations through their Plan Confidence Participant Dashboard (PCPD).

LEGAL DISCLOSURE: The information below is for informational purposes only. Nothing in the chart below should be construed as legal advice or a solicitation to buy or sell any security.

This is the commentary that we received regarding the changes made above:

TRADE RATIONALE As of 10/20/22

Key Takeaways:

Keep stock/bond split close to benchmark and continue to slash active risk under the hood: outsized Fed influence, recession risk, and inflation uncertainty vastly widens the range of outcomes, in our view, and diminishes our risk-taking appetite .

Bring longstanding value tilt and underweight to growth closer to neutral, buying back into technology stocks after avoiding much of the devastating year-to-date selloff.

Remain overweight US stocks with a preference for inflation-sensitive Developed Market stocks and low volatility Emerging Market stocks, as international economic and inflation outlooks and central bank policy initiatives diverge from the US.

Maintain a modest duration underweight position, selling longer-term nominal and inflation-linked US treasuries in favor of exposure to shorter-term credit and currently higher-yielding, attractively priced mortgage-backed securities

Trade Rationale:

We have been strategically cutting risk and pruning active bets (exposures that deviate from the benchmark) across our models since the middle of last year, citing heightened market risks as the Fed commenced its tightening campaign.

These proactive moves have generally served the models well amidst one of the most challenging periods for investors in modern history, with both stocks and bonds concurrently falling into bear markets.

Consistent with the trajectory of our last several rebalances, we are again shrinking exposure to overall risk and pulling back on existing active views, inching closer to benchmark in almost all respects.

We are not seeing much signal in current market action, economic data, or Fed guidance. We avoided falling prey to the numerous head-fake bear market rallies this year and the overly optimistic narratives that sparked them.

Recent ‘Fed-pivot’ dreamers suffered a rude awakening, falling victim to yet another short-term bounce and instead instigating a more forcefully hawkish posture from the Fed.

While we still think inflation should moderate into next year, price pressures in shelter and services have remained stubbornly sticky. Signs of demand destruction in the economy are becoming visible, but the jobs market continues to demonstrate impressive resiliency and household and corporate balance sheets remain well insulated.

In our view, this persistent strength likely emboldens the Fed to get more aggressive in its mission to quell demand and vanquish inflation at a faster pace. But given the long and variable lags in the transmission of monetary policy, inflation could very well already be slowing quite meaningfully by the time the negative effects of tightening impact the economy. For these reasons, we believe the odds of a Fed-policy-induced recession appear to have increased.

A further cautionary tale, in our view, comes from current earnings expectations, which remain unjustifiably elevated and may need to be revised notably lower.

A wave of downgrades from analysts in 2023 could put even more downward pressure on stocks, particularly if a recession does materialize.

However, if incoming inflation data improves in conjunction with slowing money supply growth (which we already see evidence of), our research suggests that could potentially be a powerful bullish catalyst.

So, we aren’t outright bearish and intend to remain patient given the mixed evidence available, waiting for stronger signals to emerge before re-risking.

Views are subject to change.

PERFORMANCE COMMENTARY As of 09/30/22

‘Fed-pivot’ dreamers suffered a rude awakening in September, falling victim to yet another vicious head-fake rally across risk assets.

US rates eclipsed year-to-date highs and stocks fell firmly back into bear market territory.

Relatively sticky inflation and robust labor market data strengthened central bankers’ resolve to continue their tightening campaign - despite the growing chorus of investor groans and worries of recession.

The market selloff was broad based across sectors, styles, and regions, with even commodities and energy stocks getting hammered lower on concerns of the demand destruction aftermath of a possible global recession.

The US dollar continued its stunning ascent, disrupting foreign exchange markets and putting pressure on vulnerable Developed Market and Emerging Market economies. The conflict in Europe showed no signs of easing with winter looming, raising the odds of a potential energy crisis and broader continental economic instability.

Most models outperformed their benchmarks for the month, but still delivered negative total returns amidst another challenging period for both stocks and bonds as rates rose and investors de-risked.

Preference for minimum volatility exposures and for US stocks over Developed Market and Emerging Market stocks, helped drive outperformance across risk-profiles.

The largest detractors to total return were US large cap stocks and broad US bond market exposure, followed by international developed market growth factor stocks.

Past performance does not guarantee future results.

Above is the rationale and the changes we made to the TACTICAL MODELS only in Plan Confidence.

If you are using our STRATEGIC models, you did not receive any rebalance instructions, as you should have made changes the first Monday of this month.

If you are using our TACTICAL MODELS you will receive an email and “push” notification at 9am EST (Monday 10/24/22) to check out your dashboard and we will show you the exact investment options to use.

I believe that it is my duty to not only best manage and advise clients on their assets, but also to keep them up-to-date on the rationale or the “why” we are making changes.

This (hopefully) will keep investors engaged and inspired to action.

As it is our goal to have every American receiving personalized and ongoing advice from an advisor of their choosing!

So, for any and all of you getting advice through the Plan Confidence dashboard, I thank you and hope that you stay confident!

And if you are not getting your advice through the Plan Confidence Participant Dashboard (PCPD), talk to your financial advisor and let them know that you too want confidence in your plans through Plan Confidence!

-Kevin T Clark, RF

Kevin is the CEO and Co-founder of Plan Confidence Corporation (PCC). PCC is an SEC registered investment firm specializing in providing advice to hard-working Americans investing in their employer’s retirement plans (401k, 403b, TSP, etc). Kevin is also an ERISA Nerd and one of only a few hundred Dalbar certified Registered Fiduciaries (RF) in the United States.