I hope that most SMI members are staying relatively detached from the day-to-day moves of the market, confident that their well-balanced portfolios — personalized to their season of life and risk tolerance — will safely deliver them to their financial destinations.

There are no official changes to the DAA lineup for September. Read on for the full details.

DAA is a core portfolio strategy designed to help SMI readers share in some of a bull market’s gains, while minimizing (or even preventing) losses during bear markets. The strategy involves using exchange-traded funds to rotate among six asset classes, holding three at any one time.

DAA is a defensive, low-volatility strategy that nonetheless has generated impressive back-tested results when evaluated over full market cycles, demonstrating the power of "winning by not losing."

The recommended categories/ETFs for September are (in order of current momentum):

There is no change to the official SR recommendation for September. Read on for the details.

Sector Rotation is a high-risk/high-volatility strategy. While its peaks and valleys have been more extreme than SMI's other strategies, it has generated impressive long-term returns, as discussed in Sector Rotation is Risky, But Highly Rewarding and A Great Strategy Gets Better: Inside Recent Sector Rotation Changes.

Sector Rotation (SR) is a long-time SMI success story. Introduced 18 years ago in 2003, the strategy has generated gains well in excess of the broad market. To be sure, this optional “add-on” strategy is volatile and scary at times, but those willing to ride the SR train have been rewarded.

That said, SR’s performance in recent years has been erratic. Despite beating the market by a wide margin in 2020, the strategy’s overall performance over the past three years has been poor. The top two lines of the table below show the struggles of “Old SR” in recent years.

After watching a significant portion of our gains from ARK Innovation (a recent SR recommendation) melt away earlier this year, it was time to take SR back to the SMI laboratory. We tested more than 20 combinations of variables and examined the performance of each over multiple time frames — which turned out to be important. We found that what worked best 10 or 20 years ago tended to differ from what has worked best lately.

The most significant driver of the financial markets over the past 13 years has been the relentless effort of the Federal Reserve and other global central banks to push down interest rates. These near-zero short-term rates have had profound ramifications. Prices of other assets (such as stocks) have risen as investors have moved out of traditional safe havens into riskier investments searching for better returns.

Retirees have arguably been the group hardest hit by this extended near-zero interest-rate policy. Traditional savings products (such as money-market funds and bank CDs) yield very little, eliminating one traditional safe haven. Bonds performed well as interest rates declined (bond prices rise as yields fall), but with rates now at rock-bottom levels (and potentially poised to rise), future bond prospects are very much in question.

In their search for alternative sources of current income, some retirees have turned to dividend-paying stocks. For the most part, this has worked out well. Stocks have risen dramatically since 2009, interrupted occasionally by brief corrections along the way.

SMI often refers to "Bond Investing 101" — the rule that when bond yields move in one direction, bond prices always move the other direction. So if rates rise, bond prices fall (and vice versa).

Sometimes we add a follow-up point: the longer the duration (time until maturity) of the bond, the more its price will tend to move in response to a change in interest rates.

Those are great starting points. The first is absolute. The second is usually true.

With a setup like that, you know what's coming next...this isn't "usually" and that second point requires a bit more explanation as a result.

It pains me to title an article this way. So many of the market's — and broader society's — current problems can be traced back to the increasingly activist role the Federal Reserve has taken in the markets over the past 35 years. I sincerely wish their actions didn't matter so much to the market's course of action.

But the Fed is the elephant in the investing room. Ignore it at your peril.

To employ another metaphor, these are the cards we have been dealt, even if they're not the cards we want. It's our job to play those cards correctly, so we'd better understand the current rules of the game.

There is a new Sector Rotation fund being recommended for August. We are also making a significant change to the SR process this month. Read on for the details.

Sector Rotation is a high-risk/high-volatility strategy. While its peaks and valleys have been more extreme than SMI's other strategies, it has generated especially impressive long-term returns, as discussed in Sector Rotation is Risky, But Highly Rewarding.

There are no official changes to the DAA lineup for August — however, we are changing the optional fund refinement. Read on for the full details.

DAA is a core portfolio strategy designed to help SMI readers share in some of a bull market’s gains, while minimizing (or even preventing) losses during bear markets. The strategy involves using exchange-traded funds to rotate among six asset classes, holding three at any one time.

DAA is a defensive, low-volatility strategy that nonetheless has generated impressive back-tested results when evaluated over full market cycles, demonstrating the power of "winning by not losing."

The recommended categories/ETFs for August are (in order of current momentum):