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Outlook Summary
Caution for Now, but Conditions Could
Improve in Q4
History Suggests Consolidation
Followed by Re-Test of Lows
Fed Credibility Coming Into Focus As
Potential Lift-Off Date Approaches
Breadth turned bearish in August, and with it the overall weight of the
Economic Trends Continue Slow
Improvement
evidence moved from neutral to arguing for more caution. This came as
the trading range environment seen earlier in the year morphed into
the first 10% correction experienced by the S&P 500 since 2011. While
the proximate cause of the sell-off was a China-related challenge to central
bank credibility, deteriorating breadth, excessively high valuations, and generally poor investor liquidity were all contributing factors.
Even as the popular averages established narrow trading ranges in the first seven months of 2015, rally participation within the
indexes was faltering. As the selling unfolded in August, downside momentum built up and we finally saw some evidence of fear
and panic from investors. A panic low was established and downside momentum appeared to be halted as the
support/resistance parameters for a consolidation phase came into focus.
Indicator Review
Bruce Bittles
Investment Strategist
wdelwiche@rwbaird.com
414-298-7802
10R.17
Source: StockCharts
Page 3 of 8
Source: StockCharts
Page 4 of 8
S&P500andIndustryGroupBreadth
200%
180%
160%
IndustryGroupUpTrend%
2000
S&P500(right)
1800
1600
140%
1400
120%
1200
100%
1000
80%
800
60%
600
40%
400
20%
200
0%
03
04
05
06
07
08
09
10
11
12
13
14
15
Source:FactSet,RWBCalculations
Robert W. Baird & Co.
Page 5 of 8
Page 6 of 8
Mix: Stocks /
(Bonds + Cash)
All Growth
100 / 0
Capital Growth
80 / 20
Growth with
Income
60 / 40
Income with
Growth
40 / 60
Conservative
Income
20 / 80
Capital
Preservation
0 / 100
Risk Tolerance
Bairds Investment Policy Committee offers a view of potential tactical allocations amongst equity, fixed income and cash, based upon a
consideration of U.S. Federal Reserve policy, underlying U.S. economic fundamentals, investor sentiment, valuations, seasonal trends,
and broad market trends. As conditions change, the Investment Policy Committee adjusts the weightings. The table below shows both
the normal range and current recommended allocation to stocks, bonds and cash. Please consult a Baird Financial Advisor in
determining if an adjustment to your strategic asset allocation is appropriate in your situation.
Asset Class /
Model Portfolio
Equities:
Suggested allocation
Normal range
Fixed Income:
Suggested allocation
Normal range
Cash:
Suggested allocation
Normal range
All Growth
Capital Growth
Growth with
Income
Income with
Growth
Conservative
Income
Capital
Preservation
95%
90 100%
75%
70 - 90%
55%
50 - 70%
35%
30 - 50%
15%
10 - 30%
0%
0%
0%
0 - 0%
15%
10 - 30%
35%
30 - 50%
45%
40 - 60%
50%
45 - 65%
60%
55 85%
5%
0 - 10%
10%
0 - 20%
10%
0 - 20%
20%
10 - 30%
35%
25 - 45%
40%
15 - 45%
Page 7 of 8
B. Craig Elder
Director
PWM Fixed Income Analyst
Page 8 of 8