Stadion Market Commentary – August 16, 2013

We have seen a bit of volatility return to the markets that had been absent the last few months. The S&P 500 is down nearly 2.5% during the last week, including a one day drop of almost 1.5% on August 15th alone, the largest single day loss since a -2.5% day nearly 2 months ago, back on June 20th. Equity price declines on August 15th coincided with a large increase in fixed income yields, as investors speculated that improving economic data (unemployment numbers, in this case) may lead to the Federal Reserve beginning the tapering of their bond purchases in the near future. The S&P 500 is now down about 3% from its high on August 5th, while the Russell 2000 Small Cap index and S&P 400 Mid Cap index are down approximately 3.5% and 4%, respectively.

The Stadion Domestic Trend Model is now signaling for its yellow equity risk environment. Several intermediate term and short term market breadth measures have turned off, and the model is picking up on the rising risk during the recent short term pullback in equity prices. Price trend measures are declining, though most remain on for the time being. Our domestic tactical portfolios have lost several positions with the volatility this week, and are now partially invested. We will continue to monitor the markets, models, and portfolios, and should prices continue to decline we will move to more defensive allocations should our holdings cross their model driven sell criteria.

In our Allocation Series portfolios, we have not made any changes to the tilting between Stadion strategies. With the longest-term trend indicators still positive, we have not shifted away from our tactical portfolios as of this time. Our Tactical International model is also identifying increased levels of risk and is partially invested at this time. Our absolute return strategy, Trilogy, has navigated the recent market action as designed within its components. The 10 year Treasury yields have increased from a low in early May at just above 1.6% to a current level above 2.8%, while 30 year Treasuries have jumped from about 2.8% to as high as 3.85%. The Stadion Tactical Income Strategy is underweight duration and has an overweight to credit compared the Barclays Aggregate index.