October 20, 2015
On October 8th we made the decision to increase market exposure across all managed portfolios. At this point, evidence suggests that the risk of a larger downturn has dropped sufficiently to warrant changes to the portfolio as we have likely met the correction lows. We now have exposure to the Shanghai market, the fixed income market, and domestic stocks. This asset allocation change, specifically, the addition of U.S. equities, responds to several developments that we have needed to see for an equity upgrade.
These changes include increased equity allocation recommended by our exposure model, extreme bearish sentiment into the August lows (contrary indicator), positive market breadth signals and expanding tape confirmation, decisive rotation out of defensive sectors and other risk-off proxies, and commodity-related indices reflecting expectations for rising demand and economic traction globally. We have also seen substantial rebounds in China, oil and commodities, all of which led the global markets down. We think the sustained rally in these former albatross areas is an indication that the environment is ready for some sort of year-end rally attempt. In addition , we believe the conditions for a rate hike using the criteria that Chair Yellen laid out in her September 24th speech have not been met. While December remains a possibility, unless the September payrolls were a one-off or are upwardly revised, liftoff has likely moved to 2016.
Our thoughts about the U.S. equity market’s intermediate term prospects can be summarized as follows: We appear to be working our way through a bottoming process. However, valuations remain stretched. Until earnings improve, the upside of any future rally may be limited. Therefore, we are positioning our portfolios for a year-end rally. However, with high valuations and earnings expectations, we are concerned the market could get into trouble again and therefore will continue to maintain tight risk controls.
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.