March 21, 2024: We recommend the following changes…
The Leading Economic Index (LEI) broke out of its persistent downtrend today, registering its first positive reading in two years (see our latest Market Insight). Although stock prices have been a major contributor to the LEI regaining traction, it is prudent to give this improvement in the macroeconomic evidence the benefit of doubt. As a result, we are incrementally adjusting the Model Fund Portfolio for this important development. However, we will unwind these positions should recession warning flags increase.
We recommend the following changes to our Model Fund Portfolio:
- Initiate a 3% position in the iShares Russell 2000 ETF (Symbol: IWM). This premier small cap index has been largely left behind and offers notably more attractive valuations and less concentration risk than the broader market. Additionally, the last time richly valued mega-cap stocks showed such extreme speculation was the Tech Bubble, and small cap stocks provided an excellent investment opportunity during the unwinding.
- Increase the Energy Select Sector SPDR ETF (Symbol: XLE) from 4.0% to 6.0%. The Energy sector continues to offer attractive value, favorable supply/demand dynamics, and strong historical performance when late cycle risks are present.
The Model Fund Portfolio now has a net invested allocation of 58%, with the remainder (42%) held in short-term Treasurys or a money market fund.