This is the video recording of the February 2nd, 2023, Weekly Town Hall w/ Willie Delwiche.
2/2/23 2:00 PM ET [Read more…]
Expert technical analysis of financial markets by JC Parets
by Peter
This is the video recording of the February 2nd, 2023, Weekly Town Hall w/ Willie Delwiche.
2/2/23 2:00 PM ET [Read more…]
by Peter
From the desk of Willie Delwiche.
The January AAII asset allocation survey shows household equity exposure rising for the third month in a row and climbing to its highest level since May.
Why It Matters: Despite last year’s stock market turmoil and claims of pessimism, investors did not abandon equities. After approaching a 20-year high in November 2021, stock exposure waned over the course of 2022 but never did drop below its long-term average. Historically, the best gains in the market come after investors become bearishly positioned (stock exposure down and cash exposure elevated). That is a pivot that has not taken place this cycle (not yet, at least). The under-owned and unloved asset classes remain bonds and cash (and commodities, which don’t even make it as a category in the AAII survey).
In this week’s Sentiment Report we take a closer look at the implications of this positioning data, how investors are responding to stock market strength this year and what valuations tell us about risk and opportunity in the current environment.
by Peter
From the desk of Willie Delwiche.
Both our Risk On Index and our Risk On and Risk Off (RO/RO) Ratio have climbed to their highest levels since early last year and in the process crossed back above key levels that provided support during 2021 but were violated as conditions deteriorated in 2022.
Why It Matters: After an unprecedented combination of volatility and weakness in 2022, we are looking for evidence that the strength that has been seen in January marks a sustainable departure from last year and not just more of the same. There is still work to be done from a longer-term trend perspective and macro questions linger. Unlike the rallies that emerged and faded in 2022, however, this year’s gains are being accompanied by more appetite for risk. As long as the Risk On index and the RO/RO ratio are showing improvement (and that improvement is being confirmed elsewhere) it is probably premature to lean against the strength we have seen. That being said, not all opportunities are created equally. Rather than trying to anticipate a turn we are most interested in following the trends that have turned higher. The strength of a move is ultimately revealed on the test.
Inside we take a Deeper Look at our Risk indexes, areas of potential improvement that would confirm recent strength and what one of the best January’s ever for the EAFE could mean for the remainder of 2023.
by Peter
2023 is on the cusp of producing as many days with new highs greater than new lows in its first month as 2022 produced over the course of the entire year. Yet there are hurdles to overcome to convincingly argue that this recent strength is sustainable.
More Context: From a macro data and Fed policy perspective, this week holds the promise to be pivotal. That is no less true from a price perspective. More stocks making new highs than new lows is bull market behavior. The S&P 500 not clearing its December high (in the context of still declining longer-term trends) is not. In addition to further trend improvement, renewed expansion in the number of stocks making new highs and continued recovery in our industry group trend indicator would be evidence of rally sustainability. Our equity models aren’t waiting for “what ifs” and while the S&P 500 is an option, it’s not the only one. Our equity positioning is increasingly outside of the US and away from large-cap growth stocks.
In our Market Notes, we take a closer look at longer-term price trends, recent breadth improvements and paradigm shifts that are taking place within global equities.
by Peter
From the Desk of Willie Delwiche.
The last decade-plus has featured extended periods of US leadership and only brief bouts of with the rest of the world on top. While it may be outside of the experience or active memory for many investors, the first decade of this millennium saw the exact opposite: persistent strength from the rest of the world and little leadership from the US.
Why It Matters: When it comes to global equity exposure, diversification has been a dirty word for a decade. US investors have not been rewarded for looking overseas. Now that is changing. Absolute uptrends are more common right now outside of the US than within our borders. Our asset allocation model that uses the ACWI (60% US) as a benchmark is near max underweight equities (versus bonds and commodities), while a version that takes the US out of the equation is at max overweight equities. Investors are taking notice, with US equity ETFs seeing outflows and foreign equity ETFs experiencing a surge in inflows. The paradigm is shifting and investors are getting on board.
by Peter
This is the video recording of the January 26th, 2023, Weekly Town Hall w/ Willie Delwiche.
1/26/23 2:00 PM ET [Read more…]
by Peter
From the desk of Willie Delwiche.
The Investors Intelligence Bull-Bear Spread was unchanged last week, remaining just beneath the level that in the past has signaled full embrace of equities and the opportunity for sustained stock market strength.
Why It Matters: Excessive optimism can signal elevated risks for equities, but since 2015, virtually all of the net gains for the S&P 500 have come when II bulls have exceeded bears by 18% or more. For the past two weeks the spread has been stuck at 16.9%. The absence of bulls and a sustained re-building in optimism over the past year have been a headwind for stocks. The shift from excessive pessimism to elevated optimism is typically when stocks do their best, but this cycle investors have been slow to embrace rally attempts. With stocks strong out of the gate to start 2023, the lack of optimism is notable. If 2023 is not going to follow the path of 2022, investor attitudes about stocks will need to change.
In this week’s Sentiment Report we take a closer look at why investors have been slow to embrace stocks and why it’s important that they do so, sooner rather than later.
by Peter
From the desk of Willie Delwiche.
Incoming economic data has been weaker than expected but our Macro Health Status report suggests the market is looking past current risks to brighter days – or perhaps it’s just whistling past the graveyard.
Why It Matters: On its surface, incoming data is consistent with recession. Aggregate hours worked in the economy are shrinking, real retail sales and industrial production are contracting and housing market activity remains a shambles. The Leading Economic Index from the Conference Board is signaling that a recession is on its way – and it has an unblemished record in this regard. But we are not seeing evidence of building stress across our macro indicators. The longer the incoming data disappoints and the longer the Fed feeds the economy a starvation diet of liquidity (M2 is declining at a never before seen pace), the harder it will be for the market to focus on a better tomorrow without a further reckoning of currently challenging conditions. The key from the perspective of our Macro Health report is which happens first: more green lights (indicating improvement) or more red lights (indicating deterioration).
Inside we take a Deeper Look at each of the macro indicators in our health status report, what they are currently signaling and where they might be going.