Investment Portfolio & Market Update
For those of you who have elected to apply the Finiat hedge to your account, you may recall a signal is provided when either a prolonged downturn or upturn is indicated. The Autumn stock market downturn triggered a reduction in our equity exposure, and we responded accordingly at the time. We added a commensurate inverse ETF position simultaneously as a “hedge” against the stock market decline and to reduce volatility as well. However, the recent equity trend has been positive and has triggered a reduction in this hedge position. We therefore recently reduced our hedge from 24% to 14%.
Update
John McHugh, Chief Investment Officer for Duncan McHugh Investments, recently pointed out, “Banks are one of the first sectors to report quarterly earnings and guidance which have come in stronger than anticipated. This gives me confidence in the probability of having a good first quarter this year, and it also supports the reduction in the hedge at this time.”
Below is the Conference Board 6 Month Moving Averages chart for the Leading Economic Indexes (“LEI”).
Information contained herein has been obtained from sources we believe reliable but is not guaranteed.
The LEI, which are key elements designed to signal peaks and troughs in the business cycle, include:
Average weekly hours, manufacturing
Average weekly initial claims for unemployment insurance
Manufacturers’ new orders, consumer goods and materials
ISM Index of New Orders
Manufacturers' new orders, nondefense capital goods excluding aircraft orders
Building permits, new private housing units
Stock prices, 500 common stocks
Leading Credit Index™
Interest rate spread,10-year Treasury bonds less federal funds
Average consumer expectations for business conditions
Though strengths within these Leading Economic Indexes still prevail, the growth rate has slowed. The following December 20, 2018 statement by notable economist Ataman Ozyildirim reflects the expected economic cycle for 2019.
“The LEI increased slightly in November, but its overall pace of improvement has slowed in the last two months,” said Ataman Ozyildirim, Director of Economic Research at The Conference Board. “Despite the recent volatility in stock prices, the strengths among the leading indicators have been widespread. Solid GDP growth at about 2.8 percent should continue in early 2019, but the LEI suggests the economy is likely to moderate further in the second half of 2019.”
Review and Discussions
As always, we will be in touch with you for regular reviews throughout the year. If you have questions or concerns, please give me a call. I’m always happy to review your investment portfolio or discuss any financial concerns you have.