3 Charts You Need to Watch

JC Parets
August 16, 2023

For me, this is what we want to watch.

Are you wondering whether this correction in the stock market can turn into something much more severe?

I certainly am.

As thrilled as we are to see some of these Tech and Growth stocks get hammered, the question is whether this aggressive selling will spill into other more value-oriented areas.

There are 3 main charts that we have on our radar.

The first one is in credit. If we're entering into a new bear market, or an aggressive period of high volatility, you are likely to see that stress in the bond market. If Treasuries begin to outperform High yield, it's evidence of that stress.

The next one is in High Beta vs Low Volatility stocks. This ratio tends to move very closely with the averages. If you start to see a bid in Low Volatility stocks relative to High Beta, then this correction is likely to be more severe.

And finally the Consumer Discretionary vs Staples. Similar to the High Beta / Low Vol ratio, this tends to signal rotation into more defensive areas of the market.

Here's what that looks like:

This is what's on the radar.

The correction we're seeing in the major indexes is perfectly normal for this time of the year, and setting us up for a November-December rally to finish up 2023.

That would be the normal path for equities according to seasonal trends. And so far this year, and this entire presidential cycle for that matter, the stock market has moved very closely with those seasonal trends.

I see little reason to start to bet against that now.

But if these ratios above start to fall apart, it would be new evidence that perhaps this correction will be more than just that.

And I'm open-minded to it.

There's just not any evidence yet suggesting this is how it will turn out.

Quite the opposite, in fact. I'm pretty impressed with how well these 3 ratios have held up so far.

We're staying patient here, but looking to put money to work over the coming months setting up for a year end rally.

What are you doing?

How do you see it?

Chime in here!

JC

 

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