Here's To Your Wealth
So far this year, the "sell in May and go away" strategy has been a flop as the U.S. stock market continues its summer rally. What might be more surprising is that some of the year's biggest winners have been the emerging markets and high yield bonds. The high yield recovery is something we have written about; it is largely a result of these bonds recovering from an oversold condition brought about by the plunge in oil prices in 2015.
The emerging market story, however, is a bit more complicated. The positive outlook we have seen recently has been driven by a forecast for higher earnings among developing nations. Many more developed markets have less rosy profit forecasts. This is particularly alarming given that many developed countries have been engaging in economic stimulus through their (near) zero percent interest rate policy. These low rates are designed to revive sluggish economic growth but they are not achieving their objective.
There are several reasons for the resurgence of the emerging markets. For starters, political risks, normally the domain of smaller, lesser developed countries, are now spreading to the developed world. Analysts have pointed to increasing global uncertainty linked to the spread of terrorism and the political backlash that may follow. In addition, firmer oil and commodity prices also tend to help many of these developing economies. The drag of regulation, a cost to businesses, is also more pronounced in developed markets relative to the newer upstarts. Add all that to the favorable valuations from years of under-performance, and emerging markets have been one of the hottest places.
As usual, there is a counter argument, and that can been seen in concern about China's debt levels, the recent coup attempt in Turkey, tensions in the south China Sea, and the risk of oil prices retreating again, especially if the global economy drags.
Our feeling is to wait this one out. Stick closer to home and don't overweight this area. Like any family, the United States has issues, and they are certainly being made public at the recent political conventions, but, as the saying goes, we are the cleanest dirty shirt in the closet.
Please call us with any questions you have on your personal situation.
"As I get older, I get smaller. I see other parts of the world I didn't see before. Other points of view. I see outside myself more."- Neil Young
Mark Avallone and the Potomac Wealth Advisors Team
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This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.
Diversification and asset allocation do not guarantee against loss. They are methods used to manage risk.
The indexes are constructed and weighted using market value-weighted index. They provide 95 percent market capitalization coverage of developed markets and emerging markets. More than 3000 DJGI indexes provide data on more than 5500 companies around the world. Market capitalization is float-adjusted
*The DJIA is a widely followed measurement of the stock market. The average is comprised of 30 stocks that represent leading companies in major industries.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
*The NASDAQ Composite Index is a market-valued weighted index, which measures all securities listed on the NASDAQ stock market.
*The S&P Mid Cap 400 Index This Standard & Poor's index serves as a barometer for the U.S. mid-cap equities sector and is the most widely followed mid-cap index in existence. To be included in the index, a stock must have a total market capitalization that ranges from roughly $750 million to $3 billion dollars. Stocks in this index represent household names from all major industries including energy, technology, healthcare, financial and manufacturing.
Russell 2000 Index
is a small-cap
stock market index
of the bottom 2,000 stocks in the
Index is a
stock market index
that is designed to measure the equity market performance of
outside of the U.S. & Canada. It is maintained by
a provider of investment decision support tools; the EAFE acronym stands for
Europe, Australasia and Far East.
* The MSCI
Emerging Markets Indexs a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
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*The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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