June 2009 Update
June 1, 2009
By Tim Chapman
"Sell in May and go away" is an old adage on Wall Street. Historically, many stock traders thought it was best to retreat to their 'cottages' in the Hamptons at the advent of Summer and wait until Labor Day to return to work. We may yet be in for some dog days, but those who left early this year missed out on nice returns.
The newsletter I wrote on April 1, Good Times in Bad Times, talked about the potential for cyclical (short-term) bull markets during secular (long-term) bear markets. I thought the rally that started in early March might be one of those rays of sunshine, and as it turns out, April was a good month and all the major indices moved higher.
Last month's newsletter was authored by Danny Mack, an analyst in our Portfolio Management department, and he closed the update by reaffirming our belief that the up move seemed to have the legs to run further. May was a volatile month with some pretty harrowing whipsaws but most of the major indices once again saw positive gains.
There's been a collective sigh of relief around the nation as stocks have now posted three consecutive months of positive returns, but it is important to keep things in perspective. Stocks have been on a run since early March - the S&P 500 is up about 35% - but don't be too comforted by short-term numbers. Year-to-date the S&P 500 is up less than 5%. It has taken a 35% rally just to climb out of the hole that was dug in January and February. Looking back at the past 12 months, the S&P 500 is still down almost 33%. Even more sobering, to get back to the October 2007 high of 1561, the S&P must gain another 65% from the current level.
In the 70's Neil Sedaka rang up gold with "Breaking Up Is Hard To Do"; in 2009 the refrain for many investors is "Catching Up Is Hard To Do". There has been a lot of optimism in the financial media over the past few weeks no doubt, but it's a result of measuring a long-term investment with a short-term measuring stick.
Don't get me wrong, at Stadion we have certainly enjoyed the good times too. All of our objectives have seen nice returns lately. Looking back over the past 12 months, while the S&P 500 is down 33%, our most aggressive accounts have only lost about 16% and our most conservative accounts have actually posted slightly positive returns over that same period. In a nutshell, while the S&P 500 needs another 50% rise to break even, that is no where near the case for our clients. If the market does achieve the gains needed for break even and we only capture a fair portion, Stadion investors will be reaching new all time highs long before the markets recover. Makes it easy to appreciate "winning by not losing" makes perfect sense when it comes to your retirement money.
Let's all hope this rally continues, but at the same time it is important that we continue to monitor market risk and if the trend turns negative and this cyclical bull market comes to an end, we won't hesitate to move to more defensive positions. Making money during the good times is nice, but only if you can protect it in the bad times.
Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money. Investment return and principal value of an investment will fluctuate so that an investor's portfolio may be worth more or less than their original investment. The investment strategy presented is not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Stadion's actively managed portfolios may underperform during bull markets.