Key Takeaway:
- Stocks and bonds weighing on portfolios.
- Federal Reserve faces a credibility test of its own making.
- Turmoil usually ends after something gets broken – this time it may be investor resolve.
Expert technical analysis of financial markets by JC Parets
by Peter
Key Takeaway:
by Peter
From the desk of Willie Delwiche.
The March 2021 CPI data (released in April of last year) showed the largest monthly increase in the prices in over a decade. The 2.7% yearly change in the CPI at that point was dismissed as being due to base effects written off as transitory. Some were even talking about how an uptick in inflation would be welcome. It has proven to be neither unduly influenced by base effects nor transitory. As inflation has continued to move higher and the Fed has belatedly attempted to bring it under control, neither stocks or bonds have responded favorably. The S&P 500 is down 3% since April 2021 and the aggregate bond index is down 8.5%. Commodities, however, have flourished, rising more than 77% in that time period.
The details of today’s inflation report suggest price pressures remain prevalent. The Fed will likely have to intensify its inflation-fighting efforts. Whether from the Fed, the current Administration or the private sector, folks who were dismissive of inflation in Spring 2021 should have their current perspectives taken with a grain of salt.
by Peter
This is the video recording of the June 9th Weekly Town Hall w/ Willie Delwiche.
06/09/22 2:00 PM ET [Read more…]
by Peter
From the desk of Willie Delwiche.
In Milwaukee, early June days when the temperature struggles to even get into the 60’s happen almost every year.
I’ve lived here long enough at this point (more than half my life) that it’s not really a surprise anymore. For the first few years I lived here, I believed friends and family when they reassured me that it was “unseasonably cold.” But I caught on soon enough.
In fact, it was 55 degrees and overcast here just yesterday. It had been raining off and on all day.
I have no problem with any of those conditions – I’m not writing this note to complain about the weather. While I don’t think of it as Summer and it’s not what I was looking forward to, I can adjust.
by Peter
From the desk of Willie Delwiche.
Key Takeaway: There is plenty of talk about investors turning fearful. This is reflected in more bears than bulls on the various sentiment surveys and high demand for puts relative to calls (though this is being distorted by the collapse in call option activity). But from a longer-term perspective, risks to the equity market remain elevated. Stocks are still historically expensive and overowned. Updated data from the Fed this week will clarify how (if at all) the household asset allocation mix shifted in Q1 after finishing 2021 with the highest exposure to stocks versus bonds in history. While the cyclical rise in pessimism may provide enough fuel for bounce attempts and counter-trend rallies, it will be difficult to suggest that a major reset has occurred until stocks are inexpensive and underowned in addition to being unloved.
Sentiment Report Chart of the Week: Equity Exposure Charts A Challenging Path
The Federal Reserve report from which we get the data behind US household asset allocation comes out quarterly, and with a lag. We will finally get Q1 2022 data this week. While quarter-to-quarter shifts are interesting, this data is more about identifying the longer-term environment for equities than anything else. The data shows that historically there has been a strong inverse correlation between exposure to stocks (relative to bonds) and forward returns for the S&P 500. In the past, when households have had heavy exposure to stocks (like they did in 1968 and 2000), the following decade has produced little by way of returns. Periods of relatively light exposure to stocks (like 1991 and 2009) were followed by some of the best 10-year returns in the stock market’s history. When we look back 10 years ago from today, the stock/bond ratio was still low in Q1 2012 (48% stocks, 28% bonds) but beginning to rise. It reached its highest level ever in Q4 of last year (62% stocks, 16% bonds). If the historical pattern holds, S&P 500 returns over the coming decade could fall quite a bit short of what has been experienced over the past decade.
by Peter
From the desk of Willie Delwiche.
This All Star Charts +Plus Monthly Playbook breaks down the investment universe into a series of largely binary decisions and tactical calls. Paired with our Weight of the Evidence Dashboard and our Playbook Chartbook, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.
by Peter
Key Takeaway:
by Peter
From the desk of Willie Delwiche.
That this is an unfamiliar and uncomfortable environment for many investors goes without saying. It was unforeseen to the extent that it is at odds with recent experience. For passive investors, the past decade (even through COVID) was one of only mild (in terms of degree and duration) interruptions to the underlying upward trend in their portfolios. Through this period, some things that should not have been forgotten were lost. Among these were diversification principles across and within asset classes. Commodity exposure withered to nothing and US investors were rewarded for indulging their home country bias. With the trend in the 60/40 benchmark portfolio now in its most significant downturn since the financial crisis of 2008/09, investor nerves are frayed, the mood is sour and patience is being tested. Adding to this frustration may be the reality that if one was indeed paying attention to expiring breadth thrust regimes, collapsing new high lists and expanding new low lists, some of this year’s roller coaster ride could perhaps have been avoided.