Geopolitical problems around the world that dominated media headlines triggered the recent mini-correction of 3.9% from the peak in the S&P 500. Many tactical investment managers sold equities and moved partially into cash – and got whipsawed by the rebound once again.
As we know, equities are volatile, and 3-5% dips are common. Fundamentals drive markets, not geopolitics. Based on fundamental factors, our tactical management model continued to indicate strength in U.S. equities in July, which gave us at Model Capital confidence to keep our portfolios fully invested. In fact, the model’s outlook became even stronger after the selloff, due to:
- Valuation ratios improved somewhat after the drop in the index.
- Q2-2014 earnings for the S&P 500 are growing at 7.6%, which mitigates the negative effect of above-average valuation.
- Unsurprisingly in the current nervous market, investors/managers grew very bearish. Sentiment are contrary factors – high level of fear improves the expected return going forward.
Model Capital Management LLC is an investment firm in Boston, focusing exclusively on tactical management. We offer the following tactical asset allocation models/strategies to investment advisors as SMA/UMA managed solutions.