Category Archives: Stock Market

Market Summary

Posted April 13, 2018 by paragon. tags:Tags: , , , , , ,
Changes Ahead_opt

Written by David Young, President & Founder of Paragon Wealth Management

The markets have been strong the past few years — and they have been exceptionally strong since Donald Trump was elected. Most of the strength was based on investor expectations. Specifically, that Trump’s free market policies and tax reform would benefit stock prices. As a result, last year the markets were up 10 to 20 percent depending on the market. Volatility was almost nonexistent.

The broad market hit a peak on Jan. 26, 2018. Since then, volatility has picked up significantly and the market has been acting more like its old self. Three issues are currently pushing it around.

First, valuations have been at the upper end of fair value for some time. Whenever valuations get this high, investors start looking for reasons to sell rather than buy. They tend to look at everything through a negative lens.

Second, Trump has been pushing a protectionist trade agenda and recently announced tariffs against China. Investors do not like tariffs. Throughout history, tariffs have always caused more harm than good. Every time tariff news comes out, the market sells off.

Third, tech stocks (specifically the FANG stocks, i.e. Facebook, Apple, Netflix, Google and Amazon) have been leading the market up for the last 18 months. But recently, they have had more than their share of bad news, which is causing them to put a downward pressure on the market.

Overall, excellent market fundamentals are still in place, which forces us to stay invested. However, with interest rates slowly rising, we are on “high alert” more than we have been in some time.

CHANGES AT PARAGON

If When I founded Paragon 32 years ago, it was because I couldn’t find a fiduciary firm that managed my money the way I wanted.

I had sold several businesses and needed a place to invest my hard-earned money. I met with Shearson Lehman, Smith Barney, Merrill Lynch and Northwestern Mutual, to name just a few. None fit the bill.

I wanted them to invest my money as if it were their own. I wanted to cut unnecessary investment costs wherever possible. I wanted a proactive investment manager who would adjust my account depending on whether the markets were going up, down, or sideways. I didn’t want them to passively buy an investment, hold it forever, and pray it worked out.

When I started Paragon, I was trading through Fidelity Investments. Each of my clients had to sign a limited power of attorney so I could trade their accounts. We called in our trades on land phone lines, one by one, because there was no internet.

After a few years, Charles Schwab became the leader in the newly developed RIA industry. They were at the cutting edge. We moved from Fidelity to Charles Schwab, because Schwab allowed us to provide the best technology and lowest costs to our clients.

We have been at Charles Schwab for almost 25 years and have enjoyed that working relationship. However, after an in-depth review, it is time for a change. Looking to the future, we believe making some significant changes will provide our clients with a better technology platform, lower transaction costs and outstanding client service.

We did not make this decision lightly. Moving 330+ accounts and upgrading multiple technology platforms is not my idea of a good time.

But change is always painful … in the short term. We are doing this because it will allow us to better serve you and provide you with the best technology available to trade and monitor your accounts.

TD AMERITRADE

TD Ameritrade is at the forefront of technology in the Registered Investment Advisor space. TD Ameritrade is a leader in trade execution. We have negotiated trade pricing that is either the same or one-fourth the cost of what we were paying, depending on the account. Better trade execution and lower costs ultimately lead to better investment results.

Safety and security of the accounts is of the utmost importance. TD Ameritrade is committed to delivering one of the highest levels of security in the industry and carries FDIC, SIPC and additional insurance against fraud up to $152 million per client.

ORION

In conjunction with moving to TD Ameritrade, we will also be implementing a new portfolio administration package from the industry leader, Orion. The Orion platform will cost Paragon five times more annually than our current provider, but that cost will not be passed on to our clients. Your costs will go down while ours go up. We believe you are worth it.

In addition to enhanced trade order management, cost basis, tax reporting, compliance, and RMD distributions, this state-of-the-art Orion platform will provide you with an incredible array of tools.

Each client will have an online portal, which will provide them with immediate access to accounts and performance across multiple timeframes. We will build these reports for you, as simple or as complicated as you desire. We will use an aggregator, which will allow you to view any of your bank accounts, or other financial accounts that are outside of Paragon. You will have immediate access to your accounts and a variety of reports via your smartphone, computer or through the mail — whichever you prefer.

EVEN MORE…

In an effort to provide you with the best client service, we will also be upgrading our client contact software. This industry-leading client software, known as “Wealthbox,” will allow our staff to take your already excellent service experience to the next level.

Finally, we are significantly upgrading our Financial Planning Software. The state-of-the-art software will make it easier to build and update your plan online. Your plans will be updated daily since they pull in the data data directly from your investment accounts. They will also be available online through your portal. Whether it is a Retirement Income plan, a tax estimate, a Roth Conversion, or Social Security Optimization, our hope is to make it easy for you to understand your plan, access it and update it as needed.

Our ultimate goal is to provide you with the VERY BEST in the Investment Advisor space. We are excited with these enhancements, and over the coming months, we will reach out to you as we get everything put in place.

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Back To Normal?

Posted April 11, 2018 by paragon. tags:Tags: , , , ,
Screen Shot 2018-04-09 at 4_opt

Written by Nathan White, Chief Investment Officer

After a tremendous start in January (and what seemed like a continuation of 2017), the markets finally hit some long-anticipated turbulence in February and March.

The stock market had been riding a nice wave. Last quarter, I suggested it was a prudent time to review allocations and risk exposure while the markets were doing well. Now that volatility has returned, let’s review current conditions and factors, as well as future considerations.

The current economic conditions are generally considered to be exemplary of the late stage of an economic cycle. However, cycles can run longer than anticipated, and there is no way to know exactly when they will end. The effects of the fiscal stimulus are helping to extend the economic cycle, but they could also increase the potential for inflation to finally rear its head. A characteristic of a late economic cycle is where the economy continues to do well, but asset price declines or increases only moderately.

A research report from NDR (Ned Davis Research, Economics/Global Comment March 2018) indicates that two-thirds of countries are growing above their long-term growth potential, which last happened in 2000 and 2007 before major recessions. However, the dangerous threshold could still be a year or so out, and the timing can be tricky. Does this mean we are bearish? No. We are just getting cautious. There are still a lot of positives, but it is our job to investigate the risks.

Our risk models are indicating a rise in risk. Our trend and breadth models, while still bullish overall, have deteriorated. We are monitoring these closely. Equity valuations are still broadly high, but earnings are forecasted to grow nearly 20% for the year. We will be watching for changes to these results and expectations. Another characteristic of a late economic cycle is a flattening yield curve. This occurs when short-term rates exceed long-term rates. The curve has been flattening as the Federal Reserve increases interest rates, but for various reasons, long-term yields have not moved commensurately. The following graphic on the next page helps put the current environment in perspective.

Investing is a long-term game, and trying to time exits can be hazardous to returns — especially if future returns are harder to come by (i.e. lower). You will need to keep exposure to get returns. Stay invested — but be flexible in the mix of those investments.

Remember, pullbacks are a normal part of market action and create opportunities. What is not normal is the absence of pullbacks (like we experienced in 2017). The trillions of dollars — pumped into the markets by global central banks since the Financial Crisis — has smoothed out volatility and market corrections. The latter should increase as central banks begin to reverse course. Keeping interest rates so low for so long has encouraged massive borrowing at cheap rates. Corporate borrowing has surged with U.S. companies’ debt reaching their highest levels since 2000. Many companies have been able to borrow at rates and amounts that wouldn’t

have been possible in a “normal” rate environment. As rates rise, the cost of servicing this debt will increase and could expose many weak hands. This is healthy in the long-term, though, as it discourages wasteful or inefficient use of precious resources. The real question is that as credit conditions normalize, what will be the effects on markets and the economy? I believe current market conditions to be exemplary of returning to a more normal environment.

STRATEGY REVIEW

The S&P 500 ended down for the quarter, and only two of 11 S&P 500 sectors posted gains and outperformed — Technology and Consumer Discretionary. Bonds were also down for the quarter as they face an uphill battle of rising interest rates. Within TopFlight, all three of the strategies (Fundamental, Momentum, and Seasonality) were up slightly for the quarter. Some of the best performers within our Momentum strategy were Nvidia, NetApp and Micron Technology. Our small cap momentum stocks generally lagged in the first quarter but closed the gap by quite a bit in March. Within our Fundamental stocks, the best performers were Northrup Grumman, Ruths Hospitality and Eastman Chemical. After a difficult 2017, our Seasonality strategy posted a gain for the quarter as well. We continue to like the valuation position of our current stock holdings. Their collective forward P/E (price/earnings) multiple is about 14.8 versus 17.4 for the S&P 500, which is about 15% less expensive. Many of these holdings are industrial and materials companies that could benefit more from the tax cuts and possible infrastructure spending.

Our Managed Income portfolio ended the quarter slightly down, primarily due to the slide in equities. We continue to maintain about 40% of the portfolio in short-term corporate bonds, which will allow us to capture the rise in interest rates without getting hit with significant capital losses. Another 15% of the portfolio is in intermediate Treasuries. We continue to avoid long-term bonds.

Going forward, our models still indicate a reasonable case for further stock market gains, but probably not on the level of past years. Inflation trends are still positive for now, and the strong economy and earnings growth outweigh the concerns I discussed earlier. But as the risks increase and the economic cycle matures, it is important to have a more flexible approach with your investments to control risks and take advantage of opportunities. This is exactly the way we like to manage investments.

If you have questions about your allocation and risk exposure, please give us a call. We are here and happy to help.

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Stocking Up

Posted October 22, 2017 by paragon. tags:Tags: , ,
Fall Time in the Park_opt

Written by Nathan White, Chief Investment Officer

How long will this upward move in stocks last? It’s a constant and valid concern, especially considering how well the markets have done for years. What will end the rally?

We are currently dealing with elevated valuation and sentiment levels, historically low volatility, rising interest rates, reversal of quantitative easing, terrorism, natural disasters, political uncertainty, and more. It is impossible to know what concern will finally “stick” and be the material cause for a correction. Sometimes markets just simply get exhausted to the upside. However, as there are always market concerns, being on the right side of the trend is more important. The current trend and economic indicators remain supportive of further stock outperformance. The market quite literally climbs a continual wall of worry. We will keep monitoring our models for indications of risk, but for now the weight of the evidence remains bullish.

If I had to pick my primary concern, it would be the potential effects from the Fed’s reversal of quantitative easing. The Fed’s quantitative easing actions (i.e. bond asset purchases) have provided tremendous liquidity to the markets. How long the markets will be able to move higher in the face of this withdrawal remains to be seen. There is usually a lag time for Fed actions to be felt in the economy and markets. As the Fed is starting slow, it may be some time before what is now being dubbed quantitative tightening (QT) has a material effect. We will watch the process with great interest.

On the constructive side, economic data continues to be positive globally. According to our indicators, recession is still not in the cards anytime soon. U.S. economic growth grew at 3.1% in the second quarter, which was slightly higher than expected. Manufacturing activity is the highest in 13 years and service-sector activity is the highest in 12 years. While stocks are expensive right now, they are not at extremes. Corporate profit growth remains positive and is offsetting the slow pace of rising interest rates. While interest rates are rising they are still extremely low on a historical scale. The prospect of fiscal policy being passed is still supporting the markets due to the potential economic shot in the arm it could provide.

Another positive is that we are heading into what is seasonally the best time of year for stocks. Additionally, the majority of global markets are trading above their moving averages, suggesting that momentum continues to support further gains.

Before this quarter, one of our concerns was that the breadth of the market advance was not very wide — only a few sectors and stocks were making up the bulk of the advance. However, last quarter alleviated some of these worries as the first half laggards such as small caps, energy, and value stocks rallied nicely. The final weeks of the quarter saw a rotation back into many of the “Trump trade” stocks.

Last quarter was good for the stocks in our Top Flight portfolio, which was up 6.3% for the quarter compared to 4.5% for the S&P 500 Index. Our stock portfolio is broken down into two segments and is currently comprised of 30 holdings of 2% each (60% total). The first is a fundamental based approach that focuses on stocks with the least downside risk. These stocks gained about 6.4% on average for the quarter. The second segment is a momentum or trend-based approach. The small cap segment of this approach was up about 11.2% and the large/mid-cap segment was up about 9.8% for the quarter. The best performers came from the auto parts industry with BorgWarner and Lear both up around 20% and 18% respectively for the quarter. Other good performers were building material companies such as Owens-Corning and Continental Building. Vertex Pharmaceuticals performed nicely after positive data on its cystic fibrosis drug. We also saw continued good performance from our aerospace and defense holdings of L3 Technologies, Northrop Grumman, Lockheed Martin, and Booz Allen Hamilton. Many of the small and mid-cap names did particularly well in September, accounting for much of the gain for the quarter.

Top Flight also includes two ETF based strategies. One strategy is based on a seasonality approach that rotates among various sectors and industries. It is comprised of three to five positions of 5% each. This strategy has been an underperformer this year and is only up about 2%. It was dragged down in the first half of the year by energy and retail exposure. While seasonality has been disappointing this year, it has been a good performer in prior years, sometimes attributable for the bulk of the gains in Top Flight. We still have confidence in this approach. The other ETF strategy is a single ETF momentum-based strategy, which is about 10 percent of the portfolio. This segment has had a single holding all year so far, the PowerShares QQQ, which is heavily weighted in technology. It is up about 22.5% for the year.

We are still grinding along in the Managed Income portfolio. Due to the low yields and the risk of extremely high prices, we are still keeping our powder dry. We are getting similar returns as the benchmark (for a lot less risk) and we are not locked into today’s low rates. Most broad-based bond funds or conservative portfolios are comprised of various mixes of longer-dated bonds. As interest rates rise, the losses on those bonds will offset the meager yields offered. Most fixed income funds or portfolios are sitting on a pile of future potential losses. There is no avoiding the dilemma, and even if interest rates didn’t rise they would be stuck with their current low yields. Therefore, we have minimized our exposure to longer-dated bonds. We believe our portfolio to be more conservatively positioned. We still prefer shorter maturity bonds, and as interest rates have risen their yields have improved. Short maturity bonds allow us to increase our yields as interest rates rise without getting hit with capital losses. While we know it is hard to accept low returns, it is better than reaching for yield and taking bigger risks like so many investors are doing. Don’t succumb to the desperation many are giving in to! Yield chasing can be hazardous to your financial health. It’s better to get a lower, more stable return than to put too much at risk.

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Keep On Keeping On

Posted October 15, 2017 by paragon. tags:Tags: , ,
Fall Mountains-1

Written by David Young, President and Founder of Paragon Wealth Management

Last quarter was a continuation of what has gone on since last year’s election: The markets keep going up. Leadership changed and rotated to Small Caps taking the lead this quarter. Small Caps lagged in the first quarter (and again in August), but then took off in September to get back in line with the other averages.

The leading indexes change from quarter to quarter, rotating between the S&P 500, the NASDAQ, Emerging Markets, International Markets and Small Caps. But the bottom line is that the market trend is up.

Assuming your investment strategy is sound, this past quarter proves the “long term argument” of waiting patiently for your strategy to pay off. Our portfolios continue to provide good performance.

I am repeatedly asked, “How long can this market keep going up?” and “With all of the problems and concerns, why does the market keep going up?”

Regarding “how long,” no one knows for sure. We are currently breaking records for the period of time we have gone without a correction. Based on our models, the market is fully valued. We are to be cautious — but still stay invested.

History shows that markets can continue going up even when they are at full value. Last year, before the election, many pundits recommended jumping out of the market. Sadly, they are now significantly behind and are still waiting for their opportunity to get back into the market. Others got out during the 2008 Crash … and have still never gotten back in. The markets are seemingly biding their time and waiting for earnings to catch up with stock prices. Usually, you would have seen a sell-off by this stage in the cycle.

THREE PERCENT GROWTH 

To answer the question of why the market is going up, I’ve pulled some content from a recent article in the Wall Street Journal by Phil Gramm and Michael Solon. They were making an argument unrelated to the stock market, but I will use talking points from their article to explain the “why.”

Stock valuations are based on their underlying earning power. When companies are expected to make more money, their stock price goes up. Conversely, when companies are expected to make less money, their stock price goes down.

Complicating things, stock prices are not necessarily based on what is actually happening; they are based on investor expectations.

Looking at the big picture, GDP is a measure of the growth of the U.S. economy. In the postwar era, the U.S. averaged 3.4% annual growth from 1948 through 2008. We averaged 3% growth for half of the George W. Bush presidency (2003-06).

Only with 3% or higher growth does America experience measurable progress in poverty reduction, strong job creation and income growth.

Many talking heads argue that the days of 3% growth are gone and that America’s economy has lost its ability to grow at 3% above inflation.

From 2009-12, the Obama administration, the Congressional Budget Office and the Federal Reserve all thought they saw 3% growth just around the corner. If the possibility of 3% growth is gone forever, it hasn’t been gone very long.

America enjoyed 3% growth for so long it’s practically become our national birthright. Census data show that real economic growth averaged 3.7% from 1890-1948. British economist Angus Maddison estimates that the U.S. averaged 4.2% real growth from 1820-89. Based on all available data, America has enjoyed an average real growth rate of more than 3% since the founding of the nation, despite the Civil War, two world wars, the Great Depression and at least 32 recessions and financial panics. If 3% growth has slipped from our grasp, we certainly had it for a long time before we lost it.

During the Obama presidency, growth slipped to an unbelievable low of 1.47%. As a result, many Americans believe 3% growth is gone forever.

Phil Gramm argues that most of the growth constraints we face today are directly attributable to the Obama era policies. The Bureau of Labor Statistics reports that labor-productivity growth since 2010 has plummeted to less than one-quarter of the average for the previous 20, 30 or 40 years. Productivity fell during the current recovery, not during the recession. With high marginal tax rates, especially on investment income, new investment during the Obama era managed only to offset depreciation, so the value of the capital stock per worker, the engine of the American colossus, stopped expanding and contributed nothing to growth.

A tidal wave of new rules and regulations across health care, financial services, energy and manufacturing forced companies to spend billions on new capital and labor that served government and not consumers. Banks hired compliance officers rather than loan officers. Energy companies spent billions on environmental compliance costs, and none of it produced energy more cheaply or abundantly. Health-insurance premiums skyrocketed but with no additional benefit to the vast majority of covered workers.

In 2006, when the labor force participation rate was 66.2%, the BLS predicted that demographic changes would push it down to 65.5% by 2016. Under Mr. Obama’s policies, it actually fell further, to 62.8%, and the number of working-age Americans not in the labor market spiked to 55 million.

By waiving work requirements for welfare, lowering food-stamp eligibility requirements and easing standards for disability payments, Mr. Obama’s policies disincentivized work. Disability rolls have expanded 18.6% during the current recovery, compared with a 16% decline during the Reagan recovery.

If reversing the Obama era policies simply eliminated half the gap between the projected 1.8% growth rate and the average growth rates during the Reagan and Clinton recoveries, it would deliver 3% real growth generating nearly $3.5 trillion in new federal revenues over the next 10 years.

Since 1960, the American economy has experienced 30 years with growth of 3% or more. Seventy-nine percent of all jobs created since 1960 were created during those years. The poverty rate fell by 72% and real median household income rose by $20,519. In the 26 years when the economy had less than 3% growth, just 21% of all post-1960 jobs were created, the poverty rate rose by 37% and household income fell by $12,004. With 3% growth, the American dream is achievable and virtually anybody willing to work hard can live it.

BOTTOM LINE 

If you listen to the national narrative about how scary and awful things are, it makes no sense why the market continues to go up.

On the other hand, when you understand that as a result of our last election, most investors “expect” that there will be major tax, healthcare and regulatory reform that should take us back to the policies that brought us 3% growth, the upward market trend starts to make sense.

As always, let us know if you have questions or need anything from us.

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Quiet Summer

Posted July 18, 2017 by paragon. tags:Tags: , ,
Chair on beach_opt 2

Written by Dave Young, President and Founder of Paragon Wealth Management

In terms of market volatility, it’s been a quiet year so far — mild back-and-forth movement with a general upward bias. Unusually quiet.

Stocks outperformed bonds in the second quarter. The NASDAQ Composite was the leader for U.S. markets. Emerging Markets had a strong showing. International markets surprisingly outperformed the U.S. The weakest trades were commodities, gold and the U.S dollar.

The market has appeared stable because of the primary indexes like the Dow and S&P 500. Also, large cap stocks have been fairly consistent through the first half of the year.

However, under the surface, it has been difficult to latch on to any consistency. There has been a random movement between growth and value, small caps and mid-caps, sectors and industries.

In the sectors and industries, the trends have been the most divergent. The Trump trade stalled as congress stopped implementing his agenda, while the FANG trade from 2015 (Facebook, Apple, Netflix, Google) reemerged. Also, the drop in oil prices and the flattening of the yield curve contributed to the dispersion.

All in all, mostly positive so far.

2017 PREDICTIONS… 

It is always interesting to compare what the “experts” predict versus what actually happens. At the beginning of 2017, Wall Street strategists projected the S&P 500 to end the year up about 5.5%, according to Birinyl Associates.

For the first six months, the index is up 8.2%. No one predicted that only five tech companies — Facebook, Apple, Amazon, Microsoft and Google — would account for about one third of the indexes gain.

In contrast with predictions, The VIX, which measures market volatility and is known as the “fear index,” plummeted to its lowest level in 20 years.

The Fed told us they were going to keep raising interest rates this year — and they have. That factor, combined with the Trump Administration’s pro-growth policies, led investors to plan for the Ten Year Treasury interest rate to move up. Instead, surprisingly, the yield dropped from 2.446% to 2.298% over the past six months.

The U.S. Dollar was supposed to strengthen in 2017. Instead, it has dropped 5.6% since the beginning of the year.

Oil prices were predicted to stabilize after major producers agreed to limit output in late 2016. Instead, U.S. oil prices fell into a bear market in the middle of June and are down 14% year-to-date.

It seems stock prognosticators and fortune tellers still have a lot in common. This is why we ignore forecasts and base our decisions on models that interpret what is actually happening in real time.

WHERE FROM HERE? 

The last time we saw a 5% correction was after the surprise Brexit vote. You probably missed that correction if you weren’t watching the market daily — it came and reversed in a matter of days.

The Brexit correction was 250 market days ago, which set another record of the longest period of time (in the past 20 years) we have gone without a 5% correction.

This low volatility is not normal. Following the first quarter’s low volatility, we only saw two days in the past quarter where the market moved up more than 1% (April 24th) or down more than 1% (May 17th).

In my opinion, we are in a difficult spot. On the one hand, the market is not cheap. But if the S&P 500 is not reasonably priced, then why does everyone keep adding money to it?

There are three pillars holding the market up.

First, the lack of other alternatives has kept the money coming into stocks. Investment options are banks and money markets, which pay nothing. Treasury notes and bonds also pay nothing, and they have significant downside if interest rates go higher. There are annuities, which shouldn’t even be classified as investments, in my opinion. Or there’s real estate, which you have to search long and hard to find anything of value. There just aren’t many decent options.

Second, the economy is fundamentally sound. Historically speaking, stock corrections aren’t usually bad when the economy is on solid footing. If we start to see signs of a recession on the horizon, the risk to the market increases significantly.

Third, the Trump hope. The market took off when Trump got elected. That didn’t make any sense if you read the papers or listened to the nightly news. However, it did make sense to investors. When the market rallied, investors believed Trump was going to reduce taxes, reduce regulations, fix healthcare and move our economy back toward its free market roots.

Then congress got involved and the Trump hope waned. That is where we are now. However, there is still some of that hope intact. Many investors no longer believe his changes are a slam-dunk, but they do think the changes still “might” happen. The fact it is still a possibility is the third pillar holding up the market.

These three pillars are what’s making an expensive market get more expensive. This is why every time the market acts like it is getting ready to sell off … it doesn’t. So far, everyone who has been sitting on the sidelines lamenting they are missing this run, jumps in when the market starts to go down.

How long will this last? It has already lasted longer than normal. It can keep going until it dies of exhaustion or one of the three pillars is taken out.

IN THE MEAN TIME 

Rule one: Don’t worry. It doesn’t change anything. It makes you feel bad. It is completely pointless.

Rule two: Stick with the basics. Invest according to your risk tolerance. Make sure how you’re invested is aligned with how much money you’re willing to put at risk. Even though it seems like a great idea to get more aggressive when markets are good (like they are now), don’t take the bait. Stay the course. This is a long-term project. Stay invested in a way that makes sense through good and bad market environments. Feel free to reach out to us — we are always happy to re-evaluate your investment strategy and risk tolerance.

Finally, if you haven’t had a chance to look at our new Private Income Fund, give us a call. It is a good option to consider in this market environment.

Have a great summer!

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Mid-Year Review And Outlook

Posted July 12, 2017 by paragon. tags:Tags: , , , ,
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Written by Nathan White, Chief Investment Officer

Volatility in the equity and bond markets has been at historic lows. The economy has been strong enough to support stocks, but not too strong to disturb bonds. While still on the expensive side, equity markets are being sustained by growing earnings. They are also still anticipating an increase in economic growth based on upcoming fiscal and policy measures. If the intended reforms keep getting delayed, it could result in a return of volatility in the second half of the year.

Global growth has been improving, and so far looks to be around 3.4% for the year compared with 2.3% for the U.S. As growth in places like Europe has improved, the ECB is setting up to follow the Fed’s footsteps in tapering its extremely accommodative monetary stance. Central banks are becoming more hawkish and could be worried about financial stability. That means they need to keep/start tightening to stay ahead of any issues and build up their ammunition. But for now, asset prices keep improving in this low inflation environment.

Recently there have been indications that the leaders of the first half of the year seem to be overdone. Whether it is simply profit taking or an outright rotation remains to be seen. We could see a churning process throughout the summer as the market tries to digest the first half gains and anticipate the environment and factors that will affect the second half of the year. For now, 75% of industries are still in uptrends. The majority of our models are bullish, but we have seen deterioration in some areas. We would like to see a broader advance across all segments rather than just the narrow leadership that has occurred. Our sentiment models are flashing caution, as they are in the overly optimistic zone. Earnings growth must continue in order to support current high valuations in the face of rising bonds yields.

Growth names doing well in a low economic growth enviroment? 

On the face of it, you would think growth stocks would do better in a high-growth environment, as opposed to the current moderate economic growth conditions. Well, markets aren’t always logical. As the stocks that benefitted from the Trump rally stalled along with his reform agenda, growth stocks took over and became first half leaders. Sectors such as Technology and Healthcare have been the best performers. In an environment of moderate growth, investors placed a premium on names that are currently growing. Much of the focus was concentrated in large mega-cap names such as Facebook, Apple, Amazon, Microsoft, and Google. These five names accounted for about one third of the S&P 500’s year-to-date gain. They are basically defensive names in a low-growth environment. Our exposure to these names has accounted for most of TopFlight’s gains as well.

Our seasonality model, which has performed well the last few years, was a laggard in the first half of the year. The energy sector tends to dominate this model in the first half of a year, but energy stocks have been poor performers due to the drop in oil prices. Seasonality signals are not high conviction through summer months. Small-cap stocks have also been trailing large-cap stocks, as they are more economically sensitive. We have observed this in our small cap momentum stocks as well.

Outlook for the second half of the year 

If a rotation out of the first half leaders develops, we could see a move from growth into value. This would better benefit the energy and financials relative to the technology and large cap growth names. We have had a slant toward value and small-cap in the first half of the year. These stocks will potentially benefit from a shift of growth to value in the second half of the year. We will keep exposure to the high-flying names for now, but want to keep exposure to the value names that have lagged, as they could benefit from a rotation in the second half of the year. If the Trump agenda gets close to becoming reality again, then our small-cap and value exposure could take off.

With oil breaking down, it creates an opportunity in the energy names. Sentiment on the sector is extremely low, and large financial traders drive oil prices in the short run. In the end, low prices are the cure for low prices in commodities. We don’t know where the bottom will be, but are watching this sector for potential plays in the stronger names.

Managed Income 

Interest rates are slowly heading higher. The Fed has raised rates twice this year and is indicating one more increase later in the year and additional ones next year. The Fed also announced it will start to reduce its massive holdings later this year. This will put pressure on bond prices — warranting caution with one’s bond exposure. We still do not recommend buying long maturity bonds, especially as yields have fallen. The extremely low yields are still not worth the risk of owning at these elevated prices. However, we are still in a waiting game until we can lock in higher yields. We have a significant amount of capital to deploy, and we want to wait for a more favorable environment. As yields have come down on longer maturity bonds, they have moved higher for short-term bonds due to the Fed raising rates. A flatter yield curve calls for shifting into cash rather than bonds. We favor short-term corporate bonds where the yields have moved up but the prices have not. We only want to use Treasury bonds as protection as opposed to an outright investment.

We are watching some oversold names in the REIT and telecom space. For example, in the heavily damaged retail space, Tanger Factory Outlet Center (SKT) is looking attractive. With its modern stores and attractive locations, it has been drawing customers away from traditional malls. Its retail tenants comprise unique desired brands along with a discount aspect enabling Tanger to boast a 95% occupancy level. The stock also has a 5.2% yield.

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Current Thoughts on the Market

Posted February 16, 2016 by paragon. tags:Tags: , ,

By Nathan White, Chief Investment Officer of Paragon Wealth Management

The following video agrees with our current readings on the economy and the fears regarding a recession.  While we acknowledge that there are notable risks to the economy the bulk of the economy is still growing slowly and the data does not currently support a recession call.   The global economy is adjusting to lower energy and commodity prices and the resultant effects on associated companies and countries.  There’s not much the central banks can do at this point and so we’ll just have to struggle through.  The latest global economic data (e.g., leading indicators, PMI’s and sentiment) continues to show signs of stabilizing.  We will continue to monitor actual conditions but for the current time the data does not indicate a recession.  If actual conditions change then we will act accordingly.

Regarding the markets:  We are by no means overly bullish but the current downturn is showing signs of being overextended.  While it is impossible to call bottoms we are seeing extremely negative sentiment expressed in the current volatility and the rush to gold and treasuries.  We will need to see oil stabilize as markets have been attached to its movements.  However, the recent downturn is creating opportunities we have been waiting for in many areas.  Valuations, which was one of our biggest concerns have come down to very reasonable levels.  Our portfolios have significant cash levels to help protect against the downside and to take advantage of opportunities as they arise.

http://www.cnbc.com/2016/02/11/stocks-are-close-to-a-bottom-paulsen.html

Disclaimer Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

 

Market Update & How Wealth Is Created

Posted January 29, 2016 by paragon. tags:Tags: ,
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Written by Dave Young, President & Founder of Paragon Wealth Management

Market Summary

While the stock market made significant advances in 2013 and 2014, last year felt more like a repeat of 2011 when the market went nowhere. In 2015, the S&P 500 experienced its first 10% decline in four years.

There were some winning sectors with technology, health care and consumer stocks posting modest gains. On the other hand, commodity, mining and energy stocks were a train wreck. Large stocks beat smaller companies and U.S. stocks beat out international ones. This year’s gains were focused in a minority of stocks.

No asset class posted double digit gains. In the past 28 years, that has only happened one other time (in 2001).

China and Greece continued to create financial drama. Emerging markets had a terrible year. Generally speaking, most stocks and sectors were in decline. In 2015, if you broke even as an investor, it would be considered a success.

Paragon Portfolios

Managed Income portfolio spent its time avoiding trouble. Many of the conservative asset classes it invests in ran into difficulty. Managed Income declined -2.8% for the year. This is its first negative year since 2008.

While we are never happy with a negative year, we were pleased it was able to avoid much of the downside experienced by the underlying asset classes it invests in. It was playing defense all year long.

Managed Income’s return from October 2001 to December 2015 is 5.14% compounded, which equates to a total return of 101.7% net of fees. (Please click here for disclosures.)

Top Flight portfolio had a good year considering positive returns were hard to come by — and those returns were in a relatively narrow group of stocks. Top Flight gained 3.71% for the year versus 1.41% for the S&P 500. Top Flight’s compound annual return from January 1998 through December 2015 is 11.7% versus 6.26% for the S&P 500. Top Flight’s total return for that period is 613.4% versus 194.0% for the S&P 500.

Paragon Private Strategies Fund’s recent audit showed an internal rate of return of 14.3% for the period from March 20, 2013 through Dec. 31, 2014. Our relatively conservative private equity fund has performed well in this difficult environment. We are planning to open a second fund in 2016. Please contact us if you are interested in exploring this investment option and for required investor qualifications.

How Wealth is Created

Making money is difficult. After a difficult year like 2015, it is important to go back to basics, evaluate your situation and make sure you are on the right path.

As financial advisors, we provide a variety of financial services like retirement, estate and business planning. However, our focus has always been on managing investments. Why? At the end of the day, if you aren’t effectively building wealth over time, most aspects of your financial plan won’t matter.

So it begs the question. What is the best way to invest? How can you invest to meet your retirement goals?

Step one. Invest in things that increase in value. Currently, money markets, CDs, bonds and fixed annuities are not likely to gain much value. Interest rates are at historic lows, and those investments are tied directly to those low interest rates. After inflation and taxes, most of these investments are actually taking you backward.

In order to build wealth, you have to invest in things that appreciate over time. With interest rates this low, only stocks, real estate and direct business investments meet the criteria.

Step two. Enhance your return by buying when prices are low and things are cheap. Conversely, you should be reducing exposure when prices are high. Is this easy? Absolutely not. It is completely counterintuitive and requires you to ignore your natural “fight or flight” inclination.

This is why we have been holding so much cash for the past eight months. Our models showed that the upside was limited — there was too much risk for the potential reward.

Let me explain by highlighting a study published last year by DALBAR, one of the nation’s leading financial research firms.

The study found that over a 20-year period ending Dec. 31, 2014, the average equity-stock-fund investor posted an average annual return of 5.19%, which compares unfavorably to the average annual return for the S&P 500 Index of 9.85%.

Going back 30 years, DALBAR paints an even gloomier picture, with the average equity-stock-fund investor earning 3.79% annually versus the S&P 500’s average annual gain of 11.06%.

The reason most investors significantly underperform over time is because they constantly follow their emotions, which consistently puts them in the wrong place at the wrong time.

Rather than buying low and selling high, they do the opposite.

Step three. Reduce investment costs where possible. There is so much “junk” — i.e. prepackaged financial products sold to the retail investor. These products are sold by banks, brokerages and independent financial planners. They’re pitched at really nice dinner seminars. The excessive internal costs of these products make it difficult for the investor to gain the benefit of their underlying investment. With many of these products, it can take years, if ever, to overcome the internal costs.

Step four. Be patient — and this is the most important step. Stocks, real estate and direct business investments take time to play out. If you buy a quality stock or a property today, for a decent price, odds are that 10 years from now it will be worth significantly more than it is today. It will likely be worth much more than if you had invested that same money in a conservative investment.

The downside — and the part that trips up most investors — is that the investments that go up the most typically fluctuate the most. And that instability causes investors to bail out at the worst possible time and lose money.

This is why we recommend diversifying your portfolio with some conservative, albeit relatively unexciting investments. Each of our clients has an investment portfolio built to their specific goals and individual risk comfort level. While this is not necessarily the way to maximize returns, it is the way to maximize your return. We know if we can keep you invested for the long term, we can significantly increase your odds of meeting your goals and building wealth.

The concept is simple; the execution is difficult. But that’s why we’re here. We are committed to helping you reach your goals. Please call if you need help or have any concerns.

Disclaimer Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Market Mayhem

Posted October 28, 2015 by paragon. tags:Tags: , , , ,
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Written By Dave Young, President and Founder of Paragon Wealth Management

This article is from Paragon’s Third Quarter Newsletter.  If you are interested in receiving a free printed copy of Paragon’s Newsletter, please click here

It’s been a difficult three months. From July through September, investors worldwide faced a market with vicious volatility and the worst performance we have seen in four years. As a group, hedge funds posted their worst performances since 2008.

Prior to this, the benchmark S&P 500 had gone 44 months without suffering an official correction, which is defined as a decline of 10% from its high. That streak ended on Aug. 24 when the index was hit with an intraday plunge of 1,100 points.

It is interesting to note that while the S&P 500 index itself declined — 12.4% from its highs — just over half of the stocks that make up that index were actually down more than 20%. This disparity shows the actual breadth of the decline.

Most indexes and asset classes were down for the quarter. The large cap stocks of the S&P 500 were actually a bright spot — only losing -6.9%. The NASDAQ was down -7.3%, U.S. Small caps lost -11.9%.

The international EAFE index lost -9%, while the emerging market index declined -12.1%. The broad-based GSCI commodity index lost -18.5%. Australia was down -15%, Canada -20%, Singapore -19.5%, China -22.7%, and Brazil -33.6%.  Gold mining companies lost 25% and silver miners lost 28%.

Why The Drama?

Last quarter, we were wrapping up our annual Greek drama. This quarter, the worry shifted to China. China’s stock market languished for much of the decade, but with encouragement from government officials, the Shanghai Composite Index went up 152% from June 30, 2014, to its peak on June 12, 2015. It is amazing what impact government meddling can have.

It was a meteoric rise by any standard, with a buying frenzy fueled by margin debt. But the index quickly shed 32% of its value in less than one month, forcing the government to implement additional measures to stem the decline.

China is the world’s second largest economy, and its growth rate has been slowing. Although China officially announced that Q2 GDP expanded by 7.0% in Q2, few believe the official report.

The most immediate impact has been on the emerging market currencies, which are grappling with a China slowdown and a possible Fed rate hike.

In addition, China surprised markets by devaluating its currency on Aug. 11 by about 3%. China’s central bank billed the surprise announcement as a market-oriented reform and a one-time move. Almost everyone else viewed it as an attempt to shore up their sagging economy by increasing their exports.

The Federal Reserve is also being blamed for the sell-off. In late July and early August, markets seemed resigned to the idea the Fed was set to boost rates at its Sept. 17 meeting. When they didn’t raise rates, it led to a circular argument as to whether that was positive or negative for the markets — which ultimately led to more uncertainty.

In my opinion, Greece, China and the Fed were just excuses for a sell off. In reality, we were in the seventh year of a bull market that was overdue for a correction.

The U.S. economy is doing OK — but not great. More importantly, market internals have been deteriorating. Valuations have been hitting the upper end of fair value. Earnings growth has slowed. And the weakness in the energy sector and the stronger dollar have both provided headwinds for the market.

Paragon Portfolios

We ended last quarter’s newsletter by saying, “We cannot see into the future.  However, as of today, (June 30), we are conservatively positioned. Based on our indicators, it would make sense that the market may continue to move sideways or that we could see a 15% to 20% decline from these prices. Our expectation is that this may play out over the next three months.”

As a result of our defensive positioning, we were able to avoid most of the carnage.

Managed Income Portfolio, our conservative portfolio, generates returns three ways.

First, Managed Income captures yield whenever available from government and corporate bonds. With interest rates being held down by the FED, most bond investments haven’t made much sense for some time. The risk-to-reward ratio for bonds is upside down and will stay that way until interest rates reset higher.

Second, Managed Income generates returns from several less risky, equity income oriented asset classes. Those are high-yield bonds, utilities, real estate, convertible and preferred stocks, MLPs, closed-end funds and some equities. The current sell-off temporarily eliminated most of these options because the market was so weak. This will likely change when the equity markets start to recover.

Third, for a very limited portion of the portfolio, Managed Income generates returns from select equity positions. Those opportunities have not been available with the market in a downtrend.

Managed Income is down -3.4% year to date. The portfolio generated a compound annual return of 5.09% from its inception Oct. 1, 2001, through Sept. 30, 2015. Its total return for that period is 100.4%.

Top Flight Portfolio is our flagship growth-oriented portfolio. Considering the difficult quarter we have just been through, we are very pleased with its performance.

This portfolio is driven by two sets of models. The first group is made up of eight primary models, each of which is either on a buy or sell signal. These models measure price momentum, volume, advance decline ratios, sentiment and a host of other market indicators. These models took us to a 50% invested status about four months ago.

The second group of models provides a ranking system, which rates about 100 asset classes. These asset classes give us potential exposure to almost every investment category available. That rotation between asset classes also helped our performance.

Top Flight is only down -0.46% year to date. Its compound annual return is 11.45% from Jan. 1, 1998, through Sept. 30, 2015. Its Total Return for that period is 584.7% versus 174.7% for the S&P 500. (See our track record page for appropriate disclosures.)

Going Forward

The good news is there can be advantageous opportunities created by the sell-off. We will work to capitalize on them as they become available.

When the market stabilizes and the potential reward justifies the risk, we will re-enter our investment positions. We do not attempt to forecast; we only react to what the market is actually doing at the time. We will continue to follow our models.

Successful investing is about playing offense and defense — each at the right time — and keeping a long-term perspective. Patience is key.

We appreciate your confidence in us. Feel free to reach out to us if you have any questions or concerns.

Disclaimer Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. 

Comments on Recent Downturn and Volatility

Posted August 25, 2015 by paragon. tags:Tags: , , ,
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Due to the volatility in the markets over the past few days, we wanted to reach out and let you know of our thoughts and the actions we are taking. We have been saying that this sell-off is long overdue for some time. It is the reason we have been holding a lot of cash and have been more defensive in our portfolios.

•Monday morning dramatic drop (which will be repeated endlessly by the media) was an aberration as most stocks were not open for trading yet.  Prices quoted were not actual bids and offers in many cases.  Many stocks and ETF’s did not open for trading until after the first half hour.  It was panic selling that was very mispriced.

•Overall, this is a healthy event for the market as it lets off much needed steam

•This downward move helps to take risk out of the market

•In the short-term, we are buyers but will move cautiously as we watch how things play out

•We have been selling some positions that have tax losses and adding commensurate exposure in other areas

•U.S. economy is in same situation as before which is fine but not great (nothing has fundamentally changed from one week ago!)

Although the current volatility creates short-term opportunities, there are still things that need to be worked out for the bull market to continue higher longer-term:

•China: The Chinese economic slowdown has dramatically affected commodities. The weaknesses of a command-and-control style of government has become apparent in the government’s futile attempts at controlling financial market moves lately.  The devaluation of the Chinese currency is negatively affecting emerging market currencies and finances with some similarities to the 1998 Asian currency crisis.  All of this is basically an adjustment as China got ahead of itself economically and now has to retrench and absorb the excess as their economy changes.

•The FED: Our central bank is boxed in a bit trying to move off of its historically accommodative monetary policy as the unintended consequences will have to be dealt with and priced in by equity and bond markets.

•Slowing corporate earnings growth: slower, but still growing, earnings were making the market a bit stretched at the prior valuations.  Market corrections help to mitigate this risk.  Fourth quarter earnings will come in higher on a comparison basis and in contrast to the prior three quarters.

Going forward we will be watching how the market reacts with an eye to opportunistically sell on the rallies and buy on the dips as the “Adjustment Period” we have been calling for continues.

Written by Nathan White, Chief Investment Officer of Paragon Wealth Management


Disclaimer Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. 

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