Never miss an update! Subscribe to LifePro Asset Management’s YouTube Channel!

[Market Update] March 2018

Share on facebook
Share on linkedin
Share on twitter
Share on email

Despite the series of earthquakes that sent many investors around the globe into a state of panic, the series of macro indicators we use to analyze and measure the level of risk to forward asset returns, remained green. As a result, we were able to use the pullback in the stock market to build up positions in some of our favorite companies at fire sale prices.  

By relying on actual quantitative data and not listening to the noise and headlines, the investment team at LPAM was able to increase the offensive positioning of client portfolios to benefit from an expected resumption of rising stock prices. The contrarian moves to increase exposure to favored stocks as panic spread allowed us to maintain and then widen our performance gap against the S&P 500 as the selloff deepened and then reversed.

The tables and charts below illustrate our flagship strategy performance, which exited the market correction +34.67%, amounting +1,021 basis points of outperformance after fees.

The core reason we can ignore the noise of pundits, news outlets and headlines, is that our investment process is based on series of quantitative and fundamental factors that measure the markets health under the hood, away from the noise of the 24-hour news cycle, both at the market level and at the individual security level.

Going forward, despite the recent market bounce, our indicators suggest further gains for U.S. stocks. This outlook is based on but not limited to the following pillars of market support;

  1. U.S. macro-economic conditions continue to improve 
  2. Corporate earnings growth is accelerating, and equity valuations are reasonable 
  3. Economically sensitive stocks are outperforming recession proof stocks 
  4. Stock market breadth is wide and robust (most stocks are participating in the rally)
  5. Credit markets and banking conditions are healthy 
The February market correction began in earnest after the January labor market report heightened fears that the shrinking supply of available workers would lead to increased wage pressures and more restrictive monetary conditions from the Federal Reserve. The indicators we pay attention at LPAM suggested otherwise, indicating that the pool of available of workers is larger than the headlines say and therefore fears over wage inflation may be overdone.

Most investors don’t pay attention to the wider measure of unemployment called the U-6 unemployment rate, which includes the long term unemployed as well as part time workers. The reality is that the labor force participation rate in the U.S. is still near historic lows. As the pool of qualified workers continues to shrink, employers are turning to the long term unemployed to fill their labor needs. As less skilled workers enter the work force, its serving as a moderating force on labor market inflation.

More importantly, we entered the recent correction with all our internal risk indicators improving. As tactical managers of client capital, it’s just as important to know when to be “tactically patient” vs. “tactically active”. When markets enter short but violent downturns such as the one in February against a backdrop of improving economic and corporate earnings data, its pays and creates more value for clients to either do nothing or add to favored investment positions.

Unfortunately, most investment firms, either don’t have an identifiable investment process or if they do, don’t have the discipline to stick to the process when waves of panic, despair and irrational exuberance sweep the market. Our symptomatic based investment process is an evolutionary one that is constantly stressed to ensure that our input factors are maintaining statistical significance in an ever-changing world.
Implementing such a process allows our investment team to spend more time identifying key secular growth trends across the planet, and the likely business platforms and leadership companies that are well positioned to benefit and dominate those news areas of growth for years to come.
As per the beginning of our market update, the LPAM Risk Indicators remain green, which means that client portfolios remain on offense.
The labor market is powering ahead without much inflation, corporate earnings growth is set to accelerate in the 1H of 2018 and the financial pipelines that supply capital to businesses remain healthy and clear of blockages. 
Healthy fundamentals combined with robust single stock participation in a bull market rally that is being led by economically sensitive business models, indicates continued progress for this much maligned bull market rally. As per usual, if the conditions on the ground change and our indicators turn cautious, we will not hesitate to change our view and become more defensive.
Thank you to all our advisor and client partners for your continued business and if you have any questions and/or concerns please do not hesitate to contact us. 
Robert Reaburn

Robert Reaburn

Robert Reaburn is the Executive Vice President and Head of Wealth Management at LifePro Asset Management. He works with financial advisors building diverse financial portfolios that best empower their clients with a lifetime of financial security.

Add Your Heading Text Here