SMI has never been a trading service and I'm not about to wade into those waters now. But I've gotten a few questions about what I meant regarding buying the gold mining stocks on a market pull-back, so I wanted to clear that up.
There is one change to the DAA lineup for June. Read on for the full details.
DAA is a core portfolio strategy that is 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 June are:
There is no change to the official SR recommendation for June. 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.
With the pandemic sending the stock market on a wild ride this year, it’s no surprise that investment headlines have focused mostly on stock indices such as the S&P 500 and the Dow Industrials.
However, the bond market has been equally turbulent. As panic selling took hold in the stock market from February 19 to March 23, investors sold even traditional safe-haven investments, including Treasury bonds, which drove prices down.
Stock prices can move suddenly and sharply, as the early months of 2020 have emphatically shown. Your holdings can take a beating, make a remarkable recovery, and then get pummeled again — all in the space of a few weeks (or even just a few days!).
How can you remain calm when the financial world periodically enters such times of temporary insanity? Here are our suggestions.
SMI offers two primary investing strategies for “basic” members. They are different in philosophy, the amount of attention they require, and the rate of return expected from each. Our preferred investing strategy is called Fund Upgrading, and is based on the idea that if you are willing to regularly monitor your mutual-fund holdings and replace laggards periodically, you can improve your returns. While Upgrading is relatively low-maintenance, it does require you to check your fund holdings each month and replace funds occasionally. If you don’t wish to do this yourself, a professionally managed version of Upgrading is available.
SMI also offers an investing strategy based on index funds called Just-the-Basics (JtB). JtB requires attention only once per year. The returns expected from JtB are lower over time than what we expect (and have received) from Upgrading. JtB makes the most sense for those in 401(k) plans that lack a sufficient number of quality fund options to make successful Upgrading within the plan possible. Here are the funds and percentage allocations we recommend for our Just-the-Basics indexing strategy.
As most of you know, SMI's strategies run on a set of well-defined, mechanical rules. Things like studying charts and technical analysis don't factor into our investment process, so we rarely comment on such matters.
That said, we do normally point out when the annual seasonality buy and sell signals happen, which has just happened. (Although we've shifted away from those signals as well since our Dynamic Asset Allocation strategy debuted several years ago.) And that provides an excuse to look at some other recent developments.
The biggest issue facing investors right now is how to reconcile the obvious carnage in the real economy with the relentlessly rising stock market. There's a tendency to interpret the market as a predictor of the economy, since it often does lead the economy. And while that may be valid at times, I'm not sure it's an accurate interpretation of the current situation.
You may be sick of hearing about the "FAANG" stocks (Facebook, Apple, Amazon, Netflix, Google, with Microsoft often added as a sixth member of the group), as they've been commented on ad nauseum in recent years. But there's just no denying they are THE story of this market rebound. Consider that the S&P 500 index is trading about -15% below its February high at present. But take those six stocks out of the rebound and the rest of the "S&P 494" is still roughly -28% below the index highs!
That alone tells us the market clearly isn't trading strictly on economic fundamentals. Or, to the extent that it is, it's trading on the FAANGM narrow economy rather than the overall, broader economy. It's not an exaggeration to say that most of this market rebound has really been a rebound in five or six key stocks.
However, we can't dismiss the rebound on that basis, either. As the chart below from Yardeni Research shows, this is a trend that's been in motion for a long time, and has really exploded since the Fed started providing massive liquidity to the markets last September when the Repo crisis hit. The share of the S&P 500 made up by the six FAANGM stocks has increased from ~18% just last fall to 23% of the index today.