May 2020 | Portfolio Update

Updated: Jul 2, 2020

Dear Spartan Client,

We sincerely hope this note finds you safe and healthy. We are reminded during times like these of how grateful we are to be here to serve our clients and friends.

Below are the asset classes utilized in Spartan portfolios and their model-driven exposure heading into May.

At a Glance: Allocation Adjustments heading into May, 2020

  • U.S. Equities: no change to the minimum allocation due to continued downtrends in all time frames.

  • International Equities: no change to minimum allocations due to continued downtrends in all time frames for both Foreign Developed and Emerging Markets.

  • Real Estate: no change to the minimum allocation due to continued downtrends in all time frames.

  • Fixed Income: remains in uptrends across all time frames for U.S. Bonds. International Bonds continue to experience downtrends across all time frames. Overall, Fixed Income exposure will be unchanged from last month.

  • TIPS: no change to exposure with uptrends remaining across all time frames.

  • Short-Term Notes and Cash Equivalents: no change as it continues to take on allocations from weaker equity and bond segments.

Asset Level Overview

Equities and Real Estate

Despite spending much of April rebounding from lows in March, stocks across all capitalizations and geographies around the globe remain firmly entrenched in downtrends. Therefore, each of these asset classes will remain at their minimum allocation in all Spartan portfolios. As is typical of bear markets, equity asset classes have retraced a significant portion of the decline only to remain below their long-term averages as we head into May. Historical data indicates large, unabated bounce backs are consistent among the major modern U.S. bear markets following waterfall declines in stock prices. At this point however, the potential recovery pattern whether ‘V’, ‘W’, ‘L’ or ‘Nike Swoosh’ shaped remains unknown.

Fixed Income

Further adding to the evidence of the current downtrend environment in U.S. equities, Fixed Income asset classes remain at or near their highs with the exception of International Bonds. Even with double-digit recovery in U.S. Stocks, U.S. Bonds have given back very little of the gains from Q1 2020. Consequently, Spartan will continue to be overweight in Fixed Income, concentrated mostly in shorter duration instruments.

Three potential macro catalysts for the recent trend changes:

  • More U.S. Government Stimulus: The House of Representatives overwhelmingly passed a $484 billion spending bill to replenish a new but swiftly depleted program providing loans to small businesses, as well as to provide further funding for coronavirus testing and hospitals.

  • Declining Macro Economic Indicators: The National Association of Realtors reported existing home sales fell to their lowest level in a year during March, prior to the full onslaught of the coronavirus crisis and stay-at-home orders. Additionally, the Labor Department reported another 3.8 million Americans filed jobless claims before April 25, bringing the six-week total to more than 30 million.

  • International Stimulus Packages: The Bank of Japan expanded monetary stimulus and pledged to buy an unlimited amount of bonds to keep borrowing costs low, as the government tries to spend its way out of the growing economic pain from the coronavirus pandemic. Also, European Union finance ministers agreed on an additional €500B worth of support, bringing the EU’s total fiscal response to the epidemic to €3.2 trillion.

Still a Long Way to Go

The title above refers to both the distance to new highs in U.S. equities and the time until it is clear how this predicament plays out. Despite rising almost 30% from lows, U.S. stocks need another 20% to “start again” at the previous highs from February 19th. Additionally, the rise has been largely driven by only five stocks (MSFT, AAPL, AMZN, GOOGL, FB). It is worth noting that these five stocks now make up nearly 20% of the S&P 500, the highest percentage of the top five companies in the index since 2000 (uncomfortable parallel?). With domestic production grinding to a halt and unemployment skyrocketing, it is difficult to fathom a return to highs anytime soon, even for us who eschew prediction and believe anything is possible (as the current pandemic proves).

Our good friends at Blueprint Investment Partners have written about the difference between asset class price shocks and bear markets. What makes the Coronacrash statistically interesting is the comparable pace of decline to a shock, such as 1987, but severity akin to the early stages of a prolonged bear market like 2008, particularly the broad economic intervention by the government and deep uncertainty about subsequent recovery.

The Data

In 1987, the S&P 500 fell 33% in only 38 days, seeing 30% (30 percentage points - ~91% of the total move) of that fall in just 13 days; by far the fastest decline of the modern era up to that point. After hitting an intraday bottom on October 20th, the index subsequently rebounded 13% by November 5th before re-testing and eventually closing at a new low on December 4th. From there, the index steadily climbed until it finally made new highs on July 26th…of 1989, the 4th fastest increase from a 20% drawdown since 1950 (484 trading days). Interestingly, GDP never contracted (the definition of recession) in or around the 1987 crash and unemployment actually DECREASED. This is evidence that market moves can be, and often are, independent of (or at least not caused by), fundamental economic data.

Now contrast to where we stand thus far in 2020. From the February 19th high, the S&P 500 index fell 34% (the DOW fell 38%) in 24 days and has recovered approximately half of its decline in less than a month. No one knows the full economic impact yet but GDP is already contracting as evidenced by Q1 2020’s 4.8% drop to go along with over 30 million new jobless claims over just the last 6 weeks.

Comparison to the past is a reminder that we are always in uncharted territory, because no one knows what the future holds, especially when markets can change so quickly. Even though people sometimes feel things are similar to previous events that have returned to prosperous markets, we will never be lulled to respond with the all too often adage “the market will come back, it always does”. If risk remains high we will remain defensive. If intervention is enough to lift us from the worst then we will look for opportunities according to our predetermined rules. Your financial life is too precious to gamble, we will continue to respond systematically to established trends to keep you in the best position to achieve the present and future you have worked so hard to create.

Please feel free to call or email us for additional details. We would be happy to discuss our take on the current environment with you in greater detail.


David Childs, Ira Ross, Blaise Stevens, and Eric Warren

Spartan Planning

Disclaimer: this note is for general update purposes related to the strategy and approach of Spartan Planning portfolios. Every client's situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your particular exposure to any given asset class will depend on your goals, risk profile, and how tactical or passive your risk profile calls for. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth please contact your advisor. This email and the data herein is not a solicitation to invest in any investment product nor is it intended to provide investment advice. It is intended for information purposes only and should be used by investment professionals and investors who are knowledgeable of the risks involved. No representation is made that any investment will or is likely to achieve results comparable to those shown or will make any profit at all or will be able to avoid incurring substantial losses. While every effort has been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Historical data are presented for informational purposes only. Investment programs described herein contain significant risks. A secondary market may not exist or develop for some investments portrayed. Past performance is not indicative of future performance. Investment decisions should be made based on the investors specific financial needs and objectives, goals, time horizon, tax liability, risk tolerance and other relevant factors. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Investors should consider the underlying funds’ investment objectives, risks, charges and expenses carefully before investing. The Advisor’s ADV, which contains this and other important information, should be read carefully before investing. ETFs trade like stocks and may trade for less than their net asset value. Spartan Planning Group, LLC (“Spartan” or the “Advisor”) is registered as an investment adviser with the United States Securities and Exchange Commission (SEC). Registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the Adviser has attained a particular level of skill or ability. Indexes are unmanaged and do not incur management fees, costs, and expenses. Spartan’s risk-management process includes an effort to monitor and manage risk, but should not be confused with and does not imply low risk or the ability to control risk. There are risks associated with any investment approach, and Spartan strategies have their own set of risks to be aware of. First, there are the risks associated with the long-term strategic holdings for each of the strategies. The more aggressive the Spartan strategy selected, the more likely the strategy will contain larger weights in riskier asset classes, such as equities. Second, there are distinct risks associated with Spartan Strategies’ shorter-term tactical allocations, which can result in more concentration towards a certain asset class or classes. This introduces the risk that Spartan could be on the wrong side of a tactical overweight, thus resulting in a drag on overall performance or loss of principal. International investments may involve additional risks, which could include differences in financial accounting standards, currency fluctuations, political instability, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks. Diversification strategies do not ensure a profit and do not protect against losses in declining markets


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