Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

3rd Quarter | 2021

Market insights and analysis

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Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

By Peter Mauthe

Early this morning it dawned on me that I have not looked at the global stock market in some time. As investors, we understandably tend to focus on domestic markets—even though there is a world of opportunity available to us. Those opportunities, including those outside of stocks, are why Flexible Plan builds strategically diversified portfolios.

The following graph shows the four segments of the global stock market that I follow: U.S. large caps (S&P 500), U.S. small caps (Russell 2000), international large caps (international established), and international small caps (emerging markets).

From a technical-analysis perspective, it is easy to see that all four of these stock market measures were in agreement when they set new ten-year highs at the same time in 2018 (yellow highlighted column). Recently, U.S. large caps moved on to a new high—the only major global segment to do so. This can happen when there is a flow of capital into one market from other markets. However, it’s important to consider that one of two things could be happening here: (1) The U.S. market is “right” in moving to new highs and the rest will follow in an important and meaningful way. (2) The U.S. market will join the rest of the cast of market segments and regroup at lower prices since it will be tough to continue to move higher by itself.

Let’s consider the first case: that U.S. large caps are blazing a trail that others will eventually follow. In that case, both our core/explore approach and strategic diversification will assure participation since international established and emerging markets are part of our core strategies’ universe. If/when the other global segments break above their respective resistance lines, they will have much farther to go from a technical perspective. They will also likely spend a lengthy period of time outperforming the S&P 500. Importantly, in our core offerings, any reallocation to international established or emerging markets that may be needed is done by strategy rules, as are all other strategy and portfolio decisions.  

As for the second case, If U.S. large caps succumb to the weight of the other global stock market sectors, then, as always, our strategy rules and strategic diversification across multiple asset classes and multiple strategies will provide many defenses for portfolios.

No matter what direction these global market segments move over time, well-crafted Flexible Plan portfolios are ready to respond accordingly.



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