Monthly Market Update: August 2017

Published 8.30.2017

The Fall and The Markets- Steps to Take

As we move into fall, there are several areas in the market that warrant both a pause and further consideration. Regardless of political affiliation, the challenges facing the President of the United States are serious, terrorism is rearing its ugly head, interest rates are on the rise, and here comes September.  According to the Stock Traders Almanac, since 1950 September is one of the poorest performing months for both the Dow Jones Industrial Average (“DJIA”) as well as the Standard and Poors 500 Index (“S&P 500”) (Source: Investopedia).  In fact, the DJIA has averaged a loss of roughly 1.11%.  The question is: does one month cause us concern or really matter in the big picture?  Our answer is “of course not.”

Other things to consider:

  • The August data from the Consumer Sentiment Index, a survey of consumers by the University of Michigan, reached the highest level since January (Source: Surveys of Consumers, University of Michigan). While this is positive in our view, we wonder if this could be a peak.

  • Earnings for last quarter, on average, came in strong and ahead of analysis expectations, but the stock market barely moved (Source: Wall Street Journal).

  • Interest rates are rising (Source: Investopedia). Rising interest rates may signal a growing economy but it is not necessarily good for the stock market.  Rising interest rates can cause more money to go into bonds and less into stocks.  Rising interest rates could hurt corporate earnings and slow a growing economy. 

The obvious question that arises is: “what should a long-term investor do to modify or change their portfolio in light of these concerning factors?”  Our answer is that the portfolio should be already positioned to take advantage of long-term trends, be nimble to invest in short-term tactical opportunities that may present themselves, and always have investments that are tied to the day to day fluctuations of the market.  We call this strategy A.C.T. Lido.

ALTERNATIVE – Alternative assets may reduce the day to day fluctuations in the market.  Real Estate equity, debt collateralized to real estate, and private equity are three popular alternative investment strategies.  Remember that an asset is not being tied to day to day market fluctuations doesn’t mean this asset or investment safer – investers need to do their homework on every investment before making the investment, and speak with a financial professional to discuss such investments.

CORE – Timing the market is next to impossible.  Rather than try that which is improbable, we try to invest in long-term trends and use dips in the market to add to our position.  Aging population, middle-class growth in Asia, millennials, multi-national companies based in the United States focused on health care, financials, technology, financials – all are what we believe to be some of the long-term trends that may warrant further consideration.

TACTICAL  – Tactical trades are trades to either reduce correlation to an overall Core strategy,  increase exposure to one particular idea, or capitalize on a short-term opportunity.  As worldwide uncertainty builds, here are a few of our conceptual ideas: If volatility rises, the Volatility Index (“VIX”) may fluctuate, and implementation of a strategy around that may be beneficial as a result.  If the world gets scary, gold can be a potential place where investors run for perceived safety.  If the economy continues to grow, financials and real estate may benefit.   Worries about global safety may make defense stocks potentially beneficial. Oh, and if one anticipates the market is going down, something radical like bonds may be an option.

 “Don’t Fear the Reaper” is a song lyric from yesteryear (Source: Blue Oyster Cult, Buck Dharma, 1976, Wikipedia).  While we might fear the reaper, we don’t fear volatility nor bear markets.  Our view is that progress moves forward and cycles allow us to take gains, add to positions, and take advantage of mispriced opportunities due to the flow of the cycle and the resulting emotional state of other investors. 

One man’s weed is another man’s flower.

–The team at Lido Advisors, LLC



Past performance is not an indication of future performance.  The information provided in this newsletter is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any types of securities.  There is a risk of loss from investments in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. 

The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessary come to pass. Lido has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.

Lido Advisors, LLC is a Registered Investment Adviser with the U.S. Securities and Exchange Commission; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. This document is being provided for informational purposes and as a helpful tool only and nothing contained herein should be considered tax or legal advice. For a copy of our ADV, go to, call 310-278-8232, or mail us at 1875 Century Park East, Suite 950, Los Angeles, California 90067.

Index Definitions:

MSCI ACWI covers approximately 85% of the global investable equity opportunity set. The index is based on the MSCI Global Investable Market Indexes (GIMI) Methodology—a comprehensive and consistent approach to index construction that allows for meaningful global views across all market capitalization size, sector and style segments and combinations. (Source: MSCI) 

MSCI EAFE Index measures international equity performance and is comprised of the developed markets outside of North America: Europe, Australasia and the Far East.  (Source: MSCI)

MSCI Emerging Markets Index is a free float Adjusted market capitalization designed to measure equity performance in global emerging markets and covers 800+ securities across 23 markets and represents about 13% of world market cap. (Source: MSCI)

The Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency). (Source: Barclay’s)

The BofA Merrill Lynch US High Yield Master II Index value, which tracks the performance of US dollar denominated below investment grade rated corporate debt publically issued in the US domestic market. (Source: BofA Merrill Lynch)

The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. (Source Russell)

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. (Source Russell)

The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market. (Source: Russell)

The S&P 500® is a market value weighted index that includes the 500 leading U.S. based companies and captures approximately 80% coverage of available market capitalization. (Source: S&P Dow Jones)

Dow Jones Industrial Average™ was introduced in May 1896, is a price-weighted measure of 30 U.S. blue-chip companies. (Source: S&P Dow Jones)

MSCI AC World Ex US: A market-capitalization-weighted index maintained by Morgan Stanley Capital International (MSCI) and designed to provide a broad measure of stock performance throughout the world, with the exception of U.S.-based companies. The MSCI All Country World Index Ex-U.S. includes both developed and emerging markets. (Source: MSCI)

Barclays US Universal: Unmanaged index comprising US dollar-denominated, taxable bonds that are rated investment grade or below investment grade.  (Source: Barclay’s)

HFRX Global Hedge Fund:  The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe.  It is comprised of all eligible hedge fund strategies falling within four principal strategies: equity hedge, event driven, macro/CTA, and relative value arbitrage. (Source: HFRX)

The Alerian MLP Infrastructure Index is a composite of energy infrastructure Master Limited Partnerships (MLPs). The capped, float-adjusted, capitalization-weighted index has 25 constituents that earn the majority of their cash flow from the transportation, storage, and processing of energy commodities.  (Source: Alerian)