We have no changes to the model portfolio at this time.
We remain cautious in our outlook for global asset markets and continue to recommend a defensive asset allocation in our model portfolio: 20% equities / 50% bonds / 20% gold / 10% cash. Euro zone government bonds are +10% YTD and gold is +7% YTD versus global equities only +5% YTD, so our defensive position continues to pay off.
The ongoing strength of this bull market in stocks has been impressive and, at 63 months, it has become the 4th longest stock market advance of the past 85 years (the long-term average is just under 4 years). However, we are starting to see some cracks in the technical strength of the market. As noted in our recent Investor Letter, fewer stocks are participating in this extended stretch higher as we move into the summer months and volume is not following price as it should. The Dow Jones Industrial Average, an index of America's 30 largest companies, continues to rally but on declining volume. A break below support of the triangle that is forming should mean a longer-term correction is likely to unfold.
The Nasdaq Composite, an index of technology stocks that typically leads the market higher, has failed to make a higher high for the move this month and is showing similar signs of fatigue as stocks in the Industrials sector.
Same story for small cap stocks; the Russell 2000 has made a lower high in June and is overbought in the near-term.
European stock markets look a little better, more like the DJIA than the NDX, but nearly three years have past without at least a 10% correction in equities, which is why we remain in defensive mode. It's not all bad news! There are a couple of sectors of the market that have been beaten down badly over the past three years and are now breaking out. Get in touch and we will let you know where the next big move will likely occur.
We will leave you with a look as some of the stronger performing stock markets around the world over the past six months.