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market spotlight | monthly review

The Dow soared over 300 points on the last day of November to close above 24000 for the first time in its history. Hopes for a tax overhaul may have contributed to investor confidence in equities. Each of the benchmark indexes listed here posted favorable monthly gains. The Nasdaq continued its strong performance in 2017, gaining over 2.0% in November, while the small caps of the Russell 2000 climbed close to 3.0%. After gaining 2.8% for November, the S&P 500 joined the Dow in posting its eighth consecutive month of positive returns. With stocks climbing, it’s not surprising that long-term bond prices fell, as evidenced by the yield on 10-year Treasuries, which jumped 4 basis points over October’s end-of-month yield.

By the close of trading on November 30, the price of crude oil (WTI) was $57.39 per barrel, up from the October 31 price of $54.54 per barrel. The national average retail regular gasoline price was $2.533 per gallon on November 27, up from the October 30 selling price of $2.488 and $0.379 more than a year ago. The price of gold increased by the end of November, closing at $1,277.40 on the last trading day of the month, up $5.60 from its price of $1,271.80 on October 31.

did you know?

Momentum has played a key role in continuing this current bull market. According to a State Street Global Advisors report, this year’s rally has made momentum the top performing factor over the past three years, as value and yield have underperformed. Technology and financials are the leading sectors—they’re also are the two sectors with the highest risk factor due to momentum. Some interesting findings from the report:

Technology has been the biggest winner in 2017 with a 38.8% year to date return, while telecommunications is the biggest laggard with a -6.6% return.

There is some correction taking place. In November, with telecom having the highest growth (6%) and technology having the second lowest (1.1%).

Fixed income funds grew their asset base by 26% versus only 10% growth in equity AUM.

Source: State Street Global Advisors

bright ideas
Why Advisors Need to Examine the Market’s Record Heights and Develop Plans for an Inevitable Downturn

The bull run we’re on has been dizzying. Each week, it seems we see another barrier broken, another record high. We began 2017 looking up at a major market milestone—a day the Dow Jones Industrial Average would close above 20,000. That day occurred on January 25, and now almost a year later, the Dow is hovering near 25,000. While the pace has slowed down some, there’s hardly been any pullback.

Market momentum

We should recognize the markets have had an amazing year, but we should not get caught up in market euphoria or the momentum of the markets. There are several factors driving this record growth, and many of those point back to potential regulatory reforms. Investors are banking on rolling back Dodd-Frank and a tax reform bill that will free up more cash. But, what if those don’t occur? And, even if they do happen, are they enough to continue driving the market? At Beacon, we continue to see momentum being a driving force for the market—and that’s always a scary thing when investors begin to think, “the market’s hot; let’s keep piling more money into it,” instead of looking at the fundamentals behind the growth.

We’ve seen markets behave like this before, and this current run is beginning to take on characteristics we saw in 1999-2000. Currently, the PE ratio for the trailing 12 months is around 25. That’s not yet in the territory of the dot-com bubble of 1999-2000 when it hit 40, but we’re currently in about the 90th percentile historically. Another similarity: the markets are being driven primarily by only two sectors—tech and financial, but a closer look reveals that technology is the biggest winner, up 38.8 percent year-to-date as of this writing.

If we factor in the optimism surrounding tax reform, think for a moment about the tech sector. Many of the titans of the industry—Apple for example—will wind up paying more in corporate taxes if they were to move many of their operations back to the U.S. and pay the proposed 20 percent tax rate. Will they return home if it means leaving money on the table? That’s an additional risk to consider when weighing investments.

Play defense

With all the market growth taking place this year, Beacon portfolios have participated in the upside but trailed behind major indices; this is to be expected given the heavy weighting in the two leading sectors. Instead of having nearly 25 percent of our portfolios weighted in tech, we continue our philosophy of an equal weight of nine percent across the eleven market sectors. That equal sector diversification approach is our first line of defense for market volatility. We are participating; we are in the market, but we’re not too heavily weighted in any specific sector to avoid exposure to the market bubbles that we have seen both in the 2000s and in 2008 to be so devastating.

Our second line of defense is the stop-loss to limit losses before they become catastrophic. At Beacon, we typically place our stop-loss target at 10 percent of the equity value. Once the equity portfolio drops 10 percent in value, those investments are sold automatically. To put that into historical perspective, in 2008, the start of our last bear market, the S&P 500 dropped 37 percent.

With the markets continuing to sit at record highs, having a strategy that continues to allow market participation while adding this safety net should a correction set in may be a critical strategy to consider and discuss with your clients going into the new year. To learn more about Beacon’s stop-loss portfolio options, contact your wholesaler today!

beacon news

Be sure to visit Beacon’s News & Press page for the latest credibility pieces to share with your clients and prospects, and follow Beacon on LinkedIn for the latest updates as they happen.

Listen in to Chris Cook’s latest interview with Fox Business Radio “Saving You Money” segment discussing investor mistakes to avoid to help your money last through retirement.



Beacon Capital Management, Inc. is an investment advisory firm registered with the Securities and Exchange Commission. Additional information about Beacon Capital Management is also available on the SEC’s website at under CRD number 120641. Beacon Capital Management only transacts business in states where it is properly registered, or excluded or exempted from registration requirements.

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