Sectors tend to rise and fall at different points in the economic cycle. Historically in early economic recoveries, sectors like finance, technology, consumer discretionary and materials have outperformed as growth and spending increase, while utilities, telecom and consumer staples may lag. However, this recovery has no precedent due to unprecedented monetary stimulus, making it difficult to determine what stage of recovery we are in. The document recommends rotating sector allocations tactically based on the economic cycle to enhance returns and manage risk.
The portfolio’s pro-cyclical bias was beneficial as we continued to see a shift in favor of cyclical stocks over defensive sectors. Over the past few years, we have seen a significant expansion in the universe of companies with the ability and willingness to pay a dividend. Given the speed with which stocks have advanced and the introduction of increased interest-rate volatility, I would describe my outlook for equities as cautious for the short term.
Following an impressive bounce back from February lows, the durability of the current bull market remains suspect. The benefits of the recent rally appear limited to the large cap, defensive sectors of the market. In prior market cycles, this has portended that the latter stages of a bull market are fast approaching and as such, caution is warranted.
The portfolio’s pro-cyclical bias was beneficial as we continued to see a shift in favor of cyclical stocks over defensive sectors. Over the past few years, we have seen a significant expansion in the universe of companies with the ability and willingness to pay a dividend. Given the speed with which stocks have advanced and the introduction of increased interest-rate volatility, I would describe my outlook for equities as cautious for the short term.
Following an impressive bounce back from February lows, the durability of the current bull market remains suspect. The benefits of the recent rally appear limited to the large cap, defensive sectors of the market. In prior market cycles, this has portended that the latter stages of a bull market are fast approaching and as such, caution is warranted.
Global equities hit another record high in December as global economic data remained robust, economic growth prospects kept being upgraded and financial conditions stayed accommodative.
Still keeping your money on the sidelines because you are nervous about the market? Take a look at this article to see some of the unintended risks of inaction.
A review of Q4 2015 corporate earnings reveals a significant slowdown in revenue and earnings growth. While these developments have been affected by the sharp decline in commodity prices,they may reveal early signs of recessionary conditions.
Economies are the cumulative reflection of the myriad of transactions taking place every day. In order for a transaction to take place, there must be a buyer and a seller. Both parties to the transaction believe that they are receiving adequate compensation, no matter on which side of the trade they reside. In financial markets, buyers and sellers are expressing differing expectations for the object being sold. Markets have continued to rise for a long period of time, indicative of there being more optimism that economic conditions will continue to improve. The question is: Will these expectations continue to be validated or will those positive expectations be overwhelmed by economic and geopolitical factors that have underpinned the rising markets to date? Are we at the dawn of a new era or the dusk of an era that has run its course?
Below please find a link to our monthly market perspective piece for May. This month we explore the reality behind market anomalies such as “sell in May and go away.”
Monthly Market Perspective - June 2016David Berger
The drivers of short-term market moves can be vastly different from those which underpin the cycles of longer-term market direction. This month we examine a variety of these factors.
Tradenomics power point-kleinhenz-june2008geoff31858
"Tradenomics" from http://www.ficiency.com/
I upload this file from ficiency.com because I wanted to view it and I don't have power point (I'm using a Mac.) My purpose, therefore, was to be able to view it.
As we enter the last quarter of 2013, US politicians are once again playing a game of brinkmanship; unfortunately one that could have dire consequences for the world’s economy. Politicians continue to entrench opposing positions rather than engage in positive action. It is highly unlikely that the entire US government will shut down as essential services will remain active, but nevertheless, investors dislike uncertainty and markets have been under pressure as the Third Quarter closed.
Global equities hit another record high in December as global economic data remained robust, economic growth prospects kept being upgraded and financial conditions stayed accommodative.
Still keeping your money on the sidelines because you are nervous about the market? Take a look at this article to see some of the unintended risks of inaction.
A review of Q4 2015 corporate earnings reveals a significant slowdown in revenue and earnings growth. While these developments have been affected by the sharp decline in commodity prices,they may reveal early signs of recessionary conditions.
Economies are the cumulative reflection of the myriad of transactions taking place every day. In order for a transaction to take place, there must be a buyer and a seller. Both parties to the transaction believe that they are receiving adequate compensation, no matter on which side of the trade they reside. In financial markets, buyers and sellers are expressing differing expectations for the object being sold. Markets have continued to rise for a long period of time, indicative of there being more optimism that economic conditions will continue to improve. The question is: Will these expectations continue to be validated or will those positive expectations be overwhelmed by economic and geopolitical factors that have underpinned the rising markets to date? Are we at the dawn of a new era or the dusk of an era that has run its course?
Below please find a link to our monthly market perspective piece for May. This month we explore the reality behind market anomalies such as “sell in May and go away.”
Monthly Market Perspective - June 2016David Berger
The drivers of short-term market moves can be vastly different from those which underpin the cycles of longer-term market direction. This month we examine a variety of these factors.
Tradenomics power point-kleinhenz-june2008geoff31858
"Tradenomics" from http://www.ficiency.com/
I upload this file from ficiency.com because I wanted to view it and I don't have power point (I'm using a Mac.) My purpose, therefore, was to be able to view it.
As we enter the last quarter of 2013, US politicians are once again playing a game of brinkmanship; unfortunately one that could have dire consequences for the world’s economy. Politicians continue to entrench opposing positions rather than engage in positive action. It is highly unlikely that the entire US government will shut down as essential services will remain active, but nevertheless, investors dislike uncertainty and markets have been under pressure as the Third Quarter closed.
Five years after the worst economic crisis of our lifetimes, we are still feeling the after-shocks around the world.
Our recent financial past seems to herald one certainty for our collective
financial future: The investment world we grew up with has changed utterly.
Conventional wisdoms shaped by decades of high-return investing — first in equities from 1982 to 2000, then in fixed income markets over most of this century — need to be reexamined, revised, or even scrapped.
Equity Market - What to expect in August 2021?Vinod Prajapati
Although with slower pace, all major indices continued upward journey in the month of July. Mid and Small-caps led the way up this month along with real estate and metal index.
So, where will the market headed in August? Here is what experts have to say...
Steve Miller • Transamerica Financial Advisors
- Active management in plain English: An advisor's perspective by Greg Gann
- Spike in VIX briefly shatters market calm
- Making a 10-year succession plan work (John Gutfranski & Debra White Stephens, Cetera Advisor Networks LLC)
Katie Williams, AIF, CRPC, CRPS, CFP • LPL Financial
- Women & investing: Is this time different? Why the message of active investment management should resonate with female prospects by Greg Gann
- Dow Theory says market divergence is troubling
- Sentiment readings as a market indicator by Jeanette Schwarz Young
- The soft sell of cross-marketing (Rod Smith, National Planning Corporation)
Are the good times here to stay or are we hearing the Sirens’ call? Since 2008, investors have been on an odyssey. Gradually, stock markets have managed to recover from the disastrous carnage precipitated by the financial crisis of 2007 and 2008. It has been an uneven path back to current market levels as there have been many occasions when it appeared that the fragile recovery would be stymied by bickering politicians, slowing emerging economies, deflationary pressures, regulatory zeal, civil unrest in the Middle East, over spent consumers, etc
1. Sectors are groups of companies in similar businesses, which are
driven by similar forces, good and bad. In the early stages of an
economic recovery, history has shown that most sectors tend to rise
across the board. However, research has shown that there can be
laggards such as utilities, telecom and consumer staple companies
as investors exit sectors that are generally regarded to have greater
safety and become more aggressive in their mindset. Examining
historical look-backs have also shown that in the early stages of
economic recovery, sectors like Finance, Technology, Consumer
Discretionary and even Materials have the most demand as growth
and consumption improves and spending becomes looser. Much of
this is common sense and most people can see and understand why
these sectors would perform in this way.
History has shown that this is how sectors typically behave in a
normal business cycle, though no two business cycles are the same.
Economic circumstances vary with each recovery cycle, as does the
degree to which each sector will out or underperform.
We have all heard that past performance is no indication of future results. This recovery is no different.
With that said, in our opinion, there is really no precedent for the current extended, six-year recovery cycle we
are experiencing. This is a recovery, facilitated by a historically liberal monetary policy courtesy of the Federal
Reserve, in an effort to recover from the worst recession in 80 years.
The unprecedented series of QE is what makes this recovery cycle so different and why experts are so
hard-pressed to determine whether we’re in the early, mid or late-cycle stage of the economic recovery.
Nothing is crystal clear and nearly everyone is guessing. In addition, the economic weakness that Europe is
currently experiencing is affecting the U.S. economy and in particular, large U.S. multinationals that depend on
worldwide demand to generate a large portion of their revenues. A stronger dollar isn’t helping multinational
earnings either. As earnings season has entered its third week, companies that do business around the world
are warning that the strong dollar will impact future earnings in 2015.
NO PRECEDENT IN RECENT HISTORY
FEBRUARY 2015
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NO PREDCEDENT CONTINUED ON P2
STAYING
TACTICAL
WITH SECTOR
INVESTING
Sector rotation investing is a
tactical strategy of rotating
weightings between the
varied business sectors of
the S&P 500® based on the
economic cycle.
Sector investing makes good
sense, and at WT Wealth
Management we believe it
makes good investing sense.
2. SECTOR STRATEGY—A TACTICAL APPROACH
HOW SECTOR INVESTING MAY HELP TO ENHANCE RETURNS AND MANAGE RISK
Unfortunately, as the world has become smaller determining where in the economic cycle we currently lie
has become more difficult. It’s not just about the U.S. anymore. Our economy is effected but the millions of
economic factors in Asia, Europe and the dozens of other major trade partners we provide and give goods
and services to around the world.
Of course, in today’s economic environment, portfolio managers continue to concern themselves with what
impact increasing interest rates may have on their clients’ portfolios. Economists are trying to figure out
whether we are in early-, mid- or late-cycle stages of the recovery. Regardless of where we may be, one thing
that seems certain, in our opinion, is that the Fed will begin raising short-term interest rates in late 2015 or
early 2016 and we feel that signals a mature recovery.
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HOW SECTORS HAVE PERFORMED CONTINUED ON P3
NO PRECEDENT IN RECENT HISTORY CONTINUED
STAYING
TACTICAL
A pillar of the WT Wealth Management style is a sector rotation strategy that allows us to take a more
active approach to client portfolios without deviating from their long-term plan. We believe a disciplined
sector rotation strategy allows us to be somewhat opportunistic while taking advantage of economic trends.
Understanding the economic cycle can allow us to potentially quantify the performance of certain industries
and their related sectors. As we all know, past performance is not predictive of future returns, but we believe
the historical performance of the different sectors has shown some clear “trend” patterns over time.
Sector rotation strategies have been shown to have more diverse returns and lower correlation than many
other style diversification strategies (growth vs. value, international vs. domestic) across most economic
cycles—but particularly in periods of rising rates and extended economic recoveries.
How Sector Investing May Help to Enhance Returns and Manage Risk.
We believe there are two ways to generate good returns: by riding the updrafts or by avoiding the downdrafts.
At WT Wealth Management we constantly review and measure risk vs. reward it’s the essence of what we do.
Minimizing downside participation is a daily focus to our overall investment strategy in order to consistently
produce results throughout a full market cycle.
From a volatility perspective, we would expect that sectors would exhibit a wide range of price movements
over an entire economic cycle. We feel that by tilting away from the sectors that perform worst during periods
of economic stress and tilting towards those that tend to historically outperform we feel we could potentially
be able to dampen the effect of overall volatility on the portfolio.
While a rising economic tide lifts all sectors to one degree or another, specific sectors often benefit to different
degrees and at different points in the economic cycle.
HOW SECTORS HAVE PERFORMED IN VARIOUS ECONOMIC CYCLES
We believe the data is fairly convincing; that different sectors respond in vastly different ways to the various
phases of the business/economic cycle.
For instance, interest-sensitive sectors, such as Consumer Discretionary, Technology and Financials will likely
benefit most in the early stages as more-confident buyers increase their borrowing to purchase cars, large
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appliances, houses and invest in technology and research while interest rates remain low. As the recovery picks
up steam, growth dependent sectors, such as Industrials, Energy and Materials will generally experience gains
as their sales begin to accelerate and as the economic recovery builds steam.
In the contraction phase of the economic cycle, sector performance can vary considerably. Typically, less
economically sensitive sectors that provide the necessities of life—Healthcare, Consumer Staples and Utilities
for instance, historically perform well. While at the same time, research data shows Energy, Industrials,
Discretionary and Information Technology tend to underperform in contraction periods as a result of their
consumption demand which is so closely tied to the ups and downs of the economy.
HOW SECTORS HAVE PERFORMED...CONTINUED
STAYING
TACTICAL
MARKET 2015
UTILITIES
FINANCIALS
TELECOMMUNICATION
TECHNOLOGY
HEALTH CARE
STAPLES
DISCRETIONARY
MATERIALS
INDUSTRIALS
ENGERY
CONTRACTIONEXPANSION
SECTOR
ROTATI0N
At WT Wealth Management we feel that we are in the 6th or 7th inning of the current economic recovery.
History has proven that the economy usually continues to expand as rates rise and we have 100% confidence
in the Federal Reserve to proceed with caution.
For 2015, in most portfolios, we continue to allocate to middle and late expansion sectors such as Materials,
Industrials and Energy. However, we always view the world with caution, skepticism and a hint of pessimism
so we also have additional exposure to Healthcare, Consumer Staples and Utilities just in case the economy
suddenly weakens.
2015 should prove to be an interesting year. In our opinion we will see a first rate increase in nearly 9 years. As a
result, markets will become more volatile and by the end of the year thoughts will turn to the 2016 Presidential
election and potentially a new political party at the helm. New information to evaluate never stops.
This is a perfect time to re-evaluate your goals, objectives and overall risk tolerance. We are always here to
help and would welcome the opportunity to sit down and review your situation and make adjustments to your
portfolio based on your specific needs.
4. WT Wealth Management is a manager of Separately Managed Accounts (SMA). Past performance is no
indication of future performance. With SMA’s, performance can vary widely from investor to investor as each
portfolio is individually constructed and allocation weightings are determined based on economic and market
conditions the day the funds are invested. In a SMA you own individual ETFs and as managers we have the
freedom and flexibility to tailor the portfolio to address your personal risk tolerance and investment objectives
– thus making your account “separate” and distinct from all others we potentially managed.
An investment in the strategy is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information is
neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should
always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks,
bonds, mutual funds and ETFs carry certain specific risks and part or all of your account value can be lost.
In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller
companies, sector ETF’s and investments in single countries typically exhibit higher volatility. International,
Emerging Market and Frontier Market ETFs investments may involve risk of capital loss from unfavorable
fluctuations in currency values, from differences in generally accepted accounting principles or from economic
or political instability that other nation’s experience. Emerging markets involve heightened risks related to the
same factors as well as increased volatility and lower trading volume. Bonds, bond funds and bond ETFs will
decrease in value as interest rates rise. A portion of a municipal bond fund’s income may be subject to federal
or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject
to capital gains tax.
Diversification and asset allocation may not protect against market risk or a loss in your investment.
At WT Wealth Management we strongly suggest having a personal financial plan in place before making
any investment decisions including understanding your personal risk tolerance and having clearly outlined
investment objectives.
WT Wealth Management is a registered investment adviser located in Jackson, WY. WT Wealth Management
may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion
from registration requirements. Any subsequent, direct communication by WT Wealth Management with a
prospective client shall be conducted by a representative that is either registered or qualifies for an exemption
or exclusion from registration in the state where the prospective client resides. For information pertaining to
the registration status of WT Wealth Management, please contact the state securities regulators for those
states in which WT Wealth Management maintains a registration filing.
A copy of WT Wealth Management’s current written disclosure statement discussing WT Wealth Management’s
business operations, services, and fees is available at the SEC’s investment adviser public information website
– www.adviserinfo.sec.gov or from WT Wealth Management upon written request.
WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness,
suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether
linked to WT Wealth Management’s web site or incorporated herein, and takes no responsibility therefor. All
such information is provided solely for convenience purposes only and all users thereof should be guided
accordingly.
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DISCLOSURE