The volatility we’ve seen since the beginning of the year continued in May as stocks alternated between strength and weakness, with the S&P 500 closing the month almost unchanged.  One piece of positive news for many investors was that the bond market stabilized with the Bloomberg Aggregate Bond Index up roughly 1% for the month after seeing losses in the first four months of the year. (YCharts)

We made changes to our portfolio positioning in mid-April in an effort to reduce risk within the growth portion of accounts.  While this defensive shift has worked well so far, we continue to monitor current economic and market conditions for potential changes.  As we look to the next 6-12 months, recession risks have risen but our economic dashboard does not yet signal that a recession is imminent.

We’re going to outline two potential scenarios that we see unfolding from here.  One may see us look to get money back to work (potentially at lower prices), while the other may see us try to reduce risk further depending on how economic conditions and markets evolve.

• Scenario 1: we think the most likely outcome for stocks at this point is that the recent rally continues given current negative sentiment and the increasing chance that the market is oversold.  We feel that a move higher will give us an opportunity to reevaluate our allocation and potentially reduce risk further.

• Scenario 2: if we don’t get a rally here, we could see stocks sell off further.  At that point, we’d likely look to take advantage of the drop in prices to reallocate the defensive portion of the portfolio at lower prices.  While this would be a more painful scenario for most investors, it’s one that we need to be prepared for. 

We will continue to keep you updated on future changes in portfolios and further developments in the market and economy. 

Please don’t hesitate to call us with questions and please pass along this email and our commentary to your friends, family, and colleagues.

Sincerely,

Your Team at TLWM

*Investment advice offered through TLWM, LLC., a registered investment advisor.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

*Credit risk can be a factor in situations where an investment’s performance relies on a borrower’s repayment of borrowed funds. With credit risk, an investor can experience a loss or unfavorable performance if a borrower does not repay the borrowed funds as expected or required. Investment holdings that involve forms of indebtedness (i.e. borrowed funds) are subject to credit risk.

* Typically, the values of fixed-income securities change inversely with prevailing interest rates. Therefore, a fundamental risk of fixed-income securities is interest rate risk, which is the risk that their value will generally decline as prevailing interest rates rise, which may cause your account value to likewise decrease, and vice versa. How specific fixed income securities may react to changes in interest rates will depend on the specific characteristics of each security. Fixed-income securities are also subject to credit risk, prepayment risk, valuation risk, and liquidity risk. Credit risk is the chance that a bond issuer will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of a bond to decline.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* Stock investing involves risk including loss of principal.

* This document is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Texas Legacy Wealth Management and its representatives are properly licensed or exempt from licensure.

* No strategy ensures a profit or protects against a loss.