WealthProtect Status Update: February 2021
Reginald A.T. Armstrong • WealthProtect Status Update
This is the monthly WealthProtect System* status update, where we include probability (Low, Mid, High) of a change in status within the next two months. We also include a commentary on actions taken this month, changes in overall asset allocation, and on the market in general.
System Commentary
No changes to the system. Stock prices have mostly moved over the past few months sharply above our trigger lines which tend to be 10-12 month moving averages. With the S&P 500 17% above its 12-month moving average, we are using six-month moving averages for exit purposes for the time being to potentially limit sharp declines like the one last year. While still about 10% above the six-month moving average, this is a more reasonable level as it gives us the ability to exit with likely only modest losses while still allowing for normal market fluctuation. Just a quick note on portfolio positioning. For our risk-managed models that use WealthProtect to help manage downside risk, we are also still 30% underweight in stocks. Those monies are invested in gold and longer-term treasuries. That has not been in our favor lately but based on what I mention below it is in our estimation prudent.
Economic/Market Commentary
The economy as measured by GDP fell 3.5% in 2020, the worst decline in 74 years. In addition, earnings of the S&P 500 companies fell approximately 31% last year. Yet, the market is at all-time highs. On 11 of 15 measures of market valuation (think “Kelly Blue Book”) the market is at historic extremes, and the other four aren’t much better. Add to this the zaniness of what is going on in the stock market the past few months and it is very tempting to conclude we are near the top of this cycle. However, these sorts of measures are NOT a good tool for deciding when to be in or out of the market in the short-term. That is why we may have a lower exposure to stocks, but also why we are not out of stocks completely.
Please speak with one of us if you have questions.
Thanks for your continued trust.