SUMMER OF VOLATILITY
Stock prices have tread water, moving sideways since last spring. The following charts, representing the primary broad stock market indices, illustrates the point.
*Please note that Wealth Shield and our trailing stop discipline is only applicable to our fee based Strategic Management (SAM) Accounts, which are managed with discretion.
GLOBAL DOW INDEX – Sideways for 6 months with a lot of volatility, represents companies in G7 economies.
VALUE LINE GEOMETRIC INDEX – Comprised of thousands of stocks, sideways for 8 months with a lot of volatility. The Geometric Index provides a clear view of the average publicly traded stock in the U.S. Each stock is equally weighted, eliminating the bias that the S&P 500 is subject to where a large company can change the average’s return.
S&P 500 EQUAL WEIGHTED INDEX – Representing the largest 500 companies in the U.S., equally weighted. Within a few percentage points of May 1st, four to five corrections.
DOW JONES INDUSTRIAL AVERAGE – Representing all sectors of the economy, flat since May 1st.
S&P 400 MID CAP INDEX – Negative return since May 1st, a lot of volatility.
S&P 600 SMALL CAP INDEX – Flat since May 1st, a lot of volatility.
NYSE COMPOSITE INDEX – Representing thousands of market cap weighted stocks traded on the New York Stock Exchange, flat since May 1st with a lot of volatility.
NYSE FANG PLUS INDEX – Typically referred to as the leadership group, the index is comprised of the largest mega cap stocks: Facebook, Apple, Amazon, Netflix, Google, and Microsoft. Flat since February, multiple double digit corrections.
Note: past performance is not an indication of future results and expectations might not materialize. Current investor concerns could evaporate as fast as they occurred.
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DEFINITIONS
Dow Jones Industrial Average - The Dow Jones Industrial Average (DJIA) is an index that tracks 30 largest, publicly owned companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. The DJIA is named after Charles Dow, who created it in 1896, and his business partner, Edward Jones.
Global Dow Index - The Global Dow (GDOW) is a 150-stock index of corporations from around the world, created by Dow Jones & Company. Only blue-chip stocks are included in the index. Like its progenitor, the Dow Jones Industrial Average (INDU), stocks in The Global Dow are selected by senior editors of The Wall Street Journal. Joining them for this new index were Dow Jones Newswires senior editors in the three major regions of the globe. The Global Dow is bigger—150 stocks rather than 30—and its components are weighted equally rather than by price. All 30 Dow industrial stocks are included, as well as some from the Dow Jones Transportation and Utility averages.
NYSE Composite Index - The NYSE Composite Index is an index that measures the performance of all stocks listed on the New York Stock Exchange. The NYSE Composite Index includes more than 1,900 stocks, of which over 1,500 are U.S. companies. Its breadth, therefore, makes it a much better indicator of market performance than narrow indexes that have far fewer components. The weights of the index constituents are calculated based on their free-float market capitalization. The index itself is calculated based on price return and total return, which includes dividends.
NYSE FAANG+ Index - An index that provides exposure to 10 of today’s highly-traded tech giants. The index launched on 09/26/2017, prior performance (09/19/2014 to 09/25/2017) is based upon backtested index calculations. Gross total return variants are shown for all of the indices in the chart. The NYSE FANG+™ Index is an equal-weighted index.
S&P 400 Mid Cap Index - The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, is designed to measure the performance of 400 mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.
S&P 500 Equal Weighted Index - The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance.
S&P 600 Small Cap Index - The S&P SmallCap 600® seeks to measure the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable.
Trailing Stop - The term stop loss refers to a general strategy whereby investors desire to limit declines in their investment holdings and avoid participating in a significant drawdown. The strategy does not eliminate the possibility of loss, it is designed rather to cut short the trend of continued losses. The strategy can lock in gains.
Trailing Stop Order - A trailing stop order is setting a stop condition, creating a moving (i.e. trailing) activation price. Trailing stop orders have unique risks which include but are not limited to:
· Trailing stop prices are not guaranteed execution prices. The price at which a stop order ultimately is executed may be very different from the stop price.
· Trailing stop orders may be triggered by a short-lived, dramatic price change. During volatile market conditions the price of a stock can move significantly in a short period of time and trigger an execution of a stop order.
· Trailing Sell stop orders my exacerbate declines during times of extreme volatility. Activation of sell stop orders may add downward price pressure on a security.
· Trailing stop orders face risk from mechanical malfunction, system disruptions, some types of corporate actions (e.g. cash dividends), and bad price ticks; among other factors.
· This service may be discontinued or limited at any time and without prior notice.
Value Line Geometric Index - The Value Line Composite Index is a stock index containing approximately 1,675 companies from the NYSE, American Stock Exchange, Nasdaq, Toronto, and over-the-counter markets. The Value Line Composite Index has two forms: The Value Line Geometric Composite Index (the original equally weighted index) and the Value Line Arithmetic Composite Index (an index which mirrors changes if a portfolio held equal amounts of stock.)
Wealth Shield – A rules-based discipline that has capital preservation as its’ primary objective. The program exits investments that have broken a bull trend, shifting those investments into cash which is then ready funds to be reinvested into those investments that have superior momentum characteristics.
The discipline can lock in gains or minimize losses, preventing further declines. Wealth Shield acts as a brake when investments and markets generate downward momentum. Please note that this service is only provided on the Strategic Asset Management (SAM) accounts that Gerald Asplund manages with discretion, it does not apply to any non-discretionary accounts such as brokerage, 401k, or insurance accounts.
IMPORTANT DISCLOSURES
This correspondence expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein and may be subject to change without notice. Neither Highcroft Investment Advisors, Gerald Asplund, nor LPL Financial, has no duty or obligation to update the information contained herein.
The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. This memorandum is being made available for educational purposes only and should not be used for any other purpose.
Some of the statements may be regarded as forward-looking statements. Forward-looking statements are, by their nature, subject to uncertainty. Forward-looking statements may include assumptions relating to future investment and economic scenarios. When used herein, the words “anticipate”, “believe”, “could”, “estimate”, “expect”, “going forward”, “intend”, “may”, “ought to”, “plan”, “project”, “seek”, “should”, “will”, “would” and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect an opinion relating to future events and are not a guarantee of future performance or developments. Reliance on any forward-looking statements involves known and unknown risks and uncertainties. Actual results and events may differ materially from information contained in the forward-looking statemen ts as a result of a number of factors. Accordingly, you should be prudent with your reliance on any forward-looking information or statements.
Investing involves risks including possible loss of principal. Past performance does not guarantee future results. Any investment or investment strategy outlined herein are not suitable for all investors, readers should conduct their own review and exercise judgment prior to investing. Wherever there is the potential for profit there is also the possibility of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. The fast price swings in commodities and currencies can result in significant volatility within an investor's holdings.
To the extent you are receiving investment advice from a separately registered independent investment advisor or broker, please note that Highcroft Investment Advisors, Gerald Asplund, and LPL Financial are not an affiliate of and makes no representation with respect to such entity.
Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources. The economic forecasts set forth in this material may not develop as predicted.
Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer.
The sources from which information has been obtained is assumed to be reliable; the accuracy of such information is not guaranteed and the accuracy and completeness of such information has not been independently verified.
This report, including the information contained herein, has been prepared exclusively for the use of Highcroft Investment Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Highcroft Investment Advisors.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results. Investing in the index would require investors purchase an investment product, which would involve fees and expenses.
ABOUT US
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