“I love it when a plan comes together.”
- John “Hannibal” Smith “The A Team”
A quick update to my July 15th “Raging Bull” update email (you can find “Raging Bull” and my other Capital Market Updates here https://www.windsorprivatewealth.com/blog if you would like a reread/refresher).
At the time I sent “Raging Bull” exactly five weeks ago, the S&P 500 had dropped over 20% from its January 2022 high, and had been as low as almost -25% off its high a few weeks earlier. Also, a few days before I send out “Raging Bull” Blackrock (the world’s largest asset manager) chief equity strategists had published a well-publicized article advising clients “Don’t buy the Dip”. In other words, while we as Windsor had turned bullish on equities and added additional equity exposure to our Flagship Global Dynamic Asset Allocation model, Blackrock and a number of other household name financial firms were recommending selling stock and adding to cash.
Happily, Windsor prevailed in that debate, and stocks rallied more than +15% from the June lows, so our bullish call back in July has played out very nicely in our portfolio models. So nicely, in fact, that last week my partners and I decided stocks had increased “too far, to fast”, considering the numerous national and global challenges our world and economy faces going forward, many of which are far from resolved.
So last week we decided to bank some of the gains from the last month and reduced both stocks and bonds in our portfolio models. I say stocks and bonds because, while the bond market doesn’t get as much media attention as the stock market, the moves there have been similarly dramatic. Specifically, back in June the ten-year US treasury bond was paying more than 3.5% interest, more than a 400% increase from the March 1, 2020, yield of 0.87%. That 3.5% didn’t last long, however, and by mid-July the ten years had dropped to around 2.5%, an almost 30% decrease in yield, bond prices jumped up as a result [i].
So, in our Global Dynamic Asset Allocation model we sold 4% of our equities, and 2% of our longer-term bond exposures, and added them to cash, market neutral funds, and ultra-short term bond funds. The results since we made the change have again been favorable, with stocks dropping last week and again today, and the ten-year treasury yield back up over 3% today for the first time in weeks.
Our prediction is for equities to fall further at some point in coming weeks and months, and bond prices to fall further which will drive bond interest rates/yields higher. As always, we’ll keep watching each component of your portfolio every day, and if/when we see another opportunity like the one, we took advantage of in June/July, now we have plenty of “dry powder” in our portfolio models to take advantage.
Thank you for your business and, as always, please let me know if you have any questions and/or if we can be of assistance in any other area at this time.
Very Truly Yours,
Managing Partner, Financial Advisor
125 High Street, Suite 220
Boston, MA 02110
[i] Bloomberg - BlackRock Warns Against Dip Buying as High-Volatility Era Dawns https://www.bloomberg.com/news/articles/2022-07-11/blackrock-says-don-t-buy-the-dips-as-high-volatility-era-sets-in