Market Commentary

Happy New Year! Now that 2019 has come to a close, it will certainly be viewed as a volatile year. We experienced everything from a government shutdown, China trade wars, GM’s labor union strike, and even a presidential impeachment.

Overall, it was a strong year for the stock market.  Our portfolios had strong gains across the board for the calendar year.  The stock market nearly lost double figures in 2018, but our portfolios were solidly positive because of our active management approach.  Now, combined with a strong 2019, our clients are enjoying an overall smooth path to accomplishing their goals.

Our in-house managed portfolios underperformed recently and we want to explain our reasoning and the background behind the decisions we made. Overall, it was a move into a more defensive posture because of the potential for a short term down term.  We’re absolutely optimistic about the long term economic outlook, but in the short term, we are concerned that “what goes up must come down” for a time.  We have 100’s pages of research that go into our decision making process that requires every bit of our attention and expertise.  Some of it is very high level and requires all of our finance degree training and experience.  We’d like to share three concepts that we think make good common sense, but if you would like to discuss our reasoning more in depth, we’d be happy to dig into the details with you personally, just give us a call.  We’d also like to remind you that we are on the same side of the table when it comes to your investments.  If your portfolio goes down, we receive a pay cut because there’s less to manage.  Bottom line, we want you to perform well and grow your account as much as possible.  If research changes and a different, more aggressive strategy is prudent, we’ll change immediately.  As of today, here are three things to consider:

First: Economic data.  Despite the recent rise in the stock market, the underlying economy continues to report slowing data. Not negative, but slowing down rather than speeding up.  We’re hopeful that recent trade deals will re-accelerate things, but as of today, manufacturing and production numbers continue to decline, GDP and aggregate earnings continue to slow, and unemployment is expected to rise as we are already near full employment. We strongly believe that at all-time highs, the best move is to be defensive and wait for a dip before we back up the truck and fill up the portfolio with aggressive stocks again. We are patiently waiting for the right time to make a shift in our portfolios. When the market dips, we will most likely make some money and then reposition for the market rebound.

Second:  Fear and greed.  Sir John Templeton is considered one of the best investors ever, and he suggested: “It is best to buy when there is blood in the streets (Wall Street).”  When people are greedy, that’s the best time to sell historically.  When people are scared, that’s the best time to buy historically.  Here is the current Greed/Fear index which says the market has moved into Extreme Greed mode (the Fear & Greed Index is sporting a score of 97, essentially signaling maximum greed–Source:

In addition, we often reference the Smart Money Confidence versus the Dumb Money Confidence levels.


Dumb Money is non-institutional investors.  Smart Money is what institutional money managers and hedge funds are doing.  In our industry, we know that some investors get their information from the nightly news and friends/family.  This is often flawed in our opinion because by the time the average investor hears about it, it can sometimes be too late.  DALBAR releases a study each year of how well the average investor did versus the index.  Over the past 30 years, the average investor has averaged 3.98% versus the S&P 500 averaging 10.16% over the same period of time (Source:  If you extrapolate that out, the average investor turned $100,000 into $322,473 while the stock market would have turned $100,000 into $1,822,711.  Why would the average investor underperform by that much?  It’s because emotions tell investors to buy high when the market is high, and to sell low when the market is low.  Smart money sells high and buys low.  The spread between smart money and dumb money is the largest in the past 2-years!  This tells us that a big move down is fairly likely based upon history.  When you look at the past couple years, dumb money has been wrong every time in that they sell when the market is bottoming, and buy when the market is topping.  The average investor is also very short-term focused in our opinion.

It is beneficial to think longer-term in a lot of cases.  For instance, Warren Buffet, the CEO of Berkshire Hathaway and one of the most famous investors ever, currently has $122 Billion dollars in cash.  He could buy something that was overpriced, but he’s waiting for a drop to buy in lower.  Patience is a virtue in investing.  Here’s a great article about his reasoning:

Within our TD Ameritrade portfolios, we decided to sell high and move into more conservative investments until the next drop occurs.  Recently, that has hurt us. If it looks unlikely for any reason that the drop is not coming, we’ll change course immediately. There are always newsy events that can make the market move higher into the greed category in the short term, but over the weeks ahead, it looks like the market is overvalued.  If we find something that’s on sale or looks like it’s going to jump higher, we’ll buy it, but we’re not going to buy something in your portfolio if our research is saying there’s a decent probability that it will drop in value very soon.

If you have any questions about taxes, your individual investment portfolio, our 401(k) recommendation service, or anything else in general, please give our office a call at (586) 226-2100.  Please feel free to forward this commentary to a friend, family member, or co-worker.  If they would like to receive this commentary in the future, please send us an e-mail at at your earliest convenience.  If you have had any changes to your income, your job, your family, your health insurance, your risk tolerance, or your overall financial situation, please give us a call so we can discuss it. 

Disclosures regarding our performance reporting:  Because some clients are in the 10% tax bracket and others are in the 37% Federal tax bracket, we have decided to report performance before taxes.  If you have a non-qualified account, please feel free to contact us to determine your individualized rate of return after tax. All of Summit’s performance is after our 1.25% advisory fee that is deducted monthly.  Your fees may be higher or lower depending upon the amount of assets invested with our firm.  Feel free to contact us to receive online access so you can see your personalized rate of return.  The Aggregate bond index we use is ticker: AGG.  All dividends and distributions are reinvested and included in the performance.  The S&P 500 index quoted above does not include dividends within the performance.  If a holding within our portfolio does pay a dividend or other income, it is reinvested, so our performance does include dividends.  This report has been prepared from data believed reliable, but no representation is made as to accuracy or completeness. Total return and principal value will vary depending upon the deduction of advisory fees, brokerage commissions, reinvestment of dividends and other earnings or fund charges. This information is provided to you in combined form, solely for your convenience and ease of review and is not an offer or solicitation to buy or sell any securities. In order to verify that all account values and transactions are accurate, we encourage you to compare the information provided in our statement with the statement you receive directly from your custodian. All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Past performance does not guarantee future results.