While the stock market ended the week with only fractional gains and losses, it was anything but a fractional week of action. The first three days saw substantial declines followed by the last two days of substantial rallies. The market is see sawing between risks of higher inflation from a strong economy with a resulting rise in interest rates (bad for Large Cap Growth stocks which dominate the S&P 500) and looking for signs the economy has peaked just in time for higher taxes (bad for Smaller Value stocks). This is a continuation of the rotation trade that began mid-March which has rallied Large Cap Growth at the expense of Smaller Cap Value stocks and Commodities. In reality, the week saw very strong manufacturing data which set more records. Likewise, the services sector set new highs. While some housing stats showed small declines for the month of April, they maintained very strong year over year numbers. Furthermore, despite the shortage of exiting homes for sale, the April rate of total Existing Home Sales exceeded the pre pandemic level. All this from an economy that is still not back to fully reopened status. Overseas, Germany and the UK showed increasing business strength as they move past their virus setbacks earlier in the year.
Foreign Developed and Emerging Market Equities generated positive returns against a fractional loss for the S&P 500. Yet, in the US, Large Caps outperformed Small and Growth outperformed Value.
Bonds were very mixed between Interest and Credit, which reflected the confusion over which economic story to believe.
Commodities went with the more pessimistic outlook which resulted in Precious Metals outperforming Industrial Metals and Energy.
Week ending May 21, 2021
All three core strategies outperformed their proxies due to allocations in Industrial Metals, Foreign Developed Equities, US Value Equities and Foreign Credit Bonds.
Tactical Income’s allocations to Energy and Foreign Credit income securities drove its positive return.
Tactical Equity substantially outperformed its proxies due to overweight in various value asset classes including Emerging Market countries India and Brazil.
Tactical US Equity’s fractional loss exceeded its proxies due to overweight in Value sectors. Tactical US Equity FT had a smaller fractional loss due to the equal weight between Growth and Value in its ETF bias.
Tactical Global Balanced generated a fractional gain due to the same Growth/Value bias in its US sectors and positions in Emerging Market Technology and Gold.
With the virus now entering the phase of rear- view recriminations, the economy is free to fully reopen and reach its full potential. That also means there is no longer a smoke screen to hide behind for any negative consequences from proposed government policies. We believe that glare of the public eye will act as a governor against the realization of some of the most extreme proposals. Therefore, we do not see the economy has peaked; if it has, it can run at that strong level for the next two years. Furthermore, with the Eurozone now catching up on vaccinations, its economy is also accelerating which will add to global growth.
The TAG and RPg strategies remain allocated to a strong growth outlook and those asset classes that should be the primary beneficiaries.
Important Disclosures:
Risk Paradigm Group, LLC (RPg Asset Management or RPg) is a registered investment advisor with the U.S. Securities and Exchange Commission (SEC). Tactical Allocation Group (TAG) joined Risk Paradigm Group, LLC and became a division of the firm on July 22, 2016. Additional information regarding Risk Paradigm Group, LLC can be found on our website at www.rpgassetmanagement.com. RPg does not provide tax or legal advice. Please consult an independent tax advisor for additional guidance.
This material has been prepared solely for informational purposes and is not to be considered investment advice or a solicitation for investment. Performance provided is past performance. Past performance is not indicative of future results. Investments may increase or decrease in value and are subject to a risk of loss. As with any investment strategy, there is potential for profit as well as the possibility of loss. No representation or warranty is made that any returns indicated will be achieved. Investors should consult their financial advisor before investing.
Any projections, market outlooks, estimates or expectations of future financial or economic performance of the markets in general are forward-looking statements and are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Actual results or events may differ materially from those projected, estimated, assumed or anticipated in any such forward-looking statements. Information contained herein is as of the period indicated and is subject to change. Any views expressed herein are those of the author(s) at the time of writing and are subject to change without notice.
The information contained herein includes information obtained from sources believed to be reliable, but we do not warrant or guarantee the timeliness or accuracy of the information as it has not been independently verified. It is made available on an “as is” basis without warranty.
This material is proprietary and may not be reproduced, transferred or distributed in any form without prior written permission from RPg. RPg reserves the right at any time, and without notice, to change, amend, or cease publication of the information contained herein. RPg may change any exposures and compositions reflected herein at any time and in any manner in response to market conditions or other factors without prior notice.
References to Indexes: The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the equity performance of larger companies in the U.S. Please note that an investor cannot invest directly into an index.
Risk Disclosures: Concentration, volatility, and other risk characteristics of a client’s account also may differ from the information shown herein. There is no guarantee that any client will achieve performance similar to, or better than, the strategy mentioned herein.
Sources: Bloomberg.
For more information, including risks of investing in our strategies, visit our website at www.rpgassetmanagement.com.