Monster October Stock Market Rally Not Sustainable in November

A brief note about the Paris attacks

A night of horror in Paris, similar to attacks in Spain in 2004. London in 2005, Moscow in 2002, Mumbai in 2008, Boston in 2013, Oklahoma City in 1995, Columbine in 1999, the Munich Olympics in 1972.  Terrorist attacks killing dozens are nearly daily occurrences in Iraq and other Arab nations.  The common characteristic of these attacks is not so much a particular religion but a particular kind of attacker - "losers" - young men alienated from society by lack of economic and marital prospects decide that a spectacle of death will provide the transformative event leading to utopia.  Alas, no.  Simply a pile of bloodied and broken bodies.  These events are human tragedies, not economic tragedies.  We grieve for the victims as people, but we don't change our positions as investors.

Monster October Stock Market Rally Not Sustainable in November

US stocks rallied 8.5% in October (best month in 4 years,) lifting stocks 12.2% off the summer lows and to within 1% of the May 2015 record high.  From November 4th, stocks declined 6 of the last 7 days, which makes investors wonder if we're heading back to those summer lows:  With 7 weeks trading weeks remaining in 2015, the S&P 500 is virtually unchanged with a gain of 0.08%.  Our price target for the S&P 500 for 2015 is a gain of 6% - still achievable.

Our full report of market indexes is here.  A number of our clients have noted that their portfolios are doing particularly poorly this year relative to the benchmarks, in some cases as much as 5% below.  Terrible, right?  We should change our strategy, right?  Not necessarily.  For 22 years we've pursued an all-cap strategy that over-weights certain high performing sectors such as healthcare, financial services, and technology while under-weighting lower performing sectors such as utilities and consumer non-discretionary.  We mix in bonds of varying credit quality to provide stability and reliability of income, and we generally invest 10% of client's assets in internationals stocks of developed markets, 5% in emerging markets.  We believe this asset allocation provides a reliable stream of "base hits" - stock positions that will likely provide a reasonable return for the amount of risk we're taking. We rarely stretch for "home run" investments; such investments have a much higher probability of "striking out."

Read the entire commentary here.