Portfolio Update: In our Cyclical portfolio we have moved global equity exposure from Latin America to Europe while in the Tactical Portfolio we are reducing energy exposure to take advantage of shifting global leadership and improving trends from the metals.
[PLUS] Weekly Sentiment Report: “Nothing Changes Sentiment Like Price”
From the desk of Willie Delwiche.
The S&P 500 continues to make lower highs as new lows have approached, but not broken below, new highs. This breadth signal occurred as the S&P 500 was peaking in January. It re-emerged near the March and August highs and appears to be doing so again.
Why It Matters: New high versus new low crossovers are usually fueled more by changes in the new low list than the new high list. New highs edge up slowly in the early stages of a bull market and can peak well before the indexes. The post-COVID bull market was a great example of that. But regardless of the driver, history shows it is important that they take place. As the longest bear market since the Financial Crisis has moved along, investors have been itching to turn more optimistic. But so far the price action (on the surface and below) isn’t doing much to change anyone’s mind or give rise to the increase in bulls needed to have a bull market.
In this week’s Sentiment Report we take a closer look at persistent pessimism and how investors so far haven’t matched word with deed.
[PLUS] December Playbook: Trends, Opportunities, Risks
From the desk of Willie Delwiche.
This All Star Charts PLUS Monthly Playbook breaks down the investment universe into a series of binary decisions, tactical calls and asset allocation models.
Paired with our Weight of the Evidence Dashboard and our Playbook Chartbook, this piece is designed to help dynamic asset allocators follow trends, pursue opportunities, and manage risk.
Weekly Market Notes: Uptrends In Short Supply
The uptrend for bonds peaked in early 2021. The trend for stocks did so a year later. Commodities peaked in June and over the past few months the trend has been slowly (an unevenly rolling over).
More Context: It could always reverse higher, but the commodity trend has fallen two weeks in a row and is down in 6 of the past 10 weeks. As the summer peak in commodities moves further into the rear-view mirror, it looks increasingly like all three of the major asset classes are now in downtrends. This leaves investors with fewer places of refuge as the most challenging year in a generation grinds to a close. Business cycle history suggests that the next important turn in trend will be bonds turning higher (and bond yields turning lower). It hasn’t happened yet (despite the recent drop in bond yields) but our long-term trend indicators suggest bonds are closer to turning higher than stocks (and bonds are trending higher relative to stocks). While the pattern is not set in stone, equities have not made the case that this time will be different.
We take a Deeper Look at a week of fumbled opportunities and areas of interest in an environment where equity market uptrends are hard to find.
[PLUS] Weekly Observations & One Chart for the Weekend: Dollar Downturn Gets Globe In Gear
From the Desk of Willie Delwiche.
As the dollar was peaking in late-September, 4% of world markets were above their 50-day average and 4% were above their 200-day average. The dollar now is 8% of that peak (and below its 200-day average for the first time since June 2021). More than two-thirds of ACWI markets are now above their 200-day averages (the most in over a year) and nearly 95% are above their 50-day average (the most in nearly 2 years).
Why It Matters: Dollar weakness may be the catalyst (or one of several catalysts), but the important development is improving global breadth. That is typically supportive of US stocks. Beyond that, dynamics in the current environment are actually pointing to a changing of the guard in terms of global leadership. The US has seen its relative strength wane while Europe and other developed markets have taken the lead. For US investors, this means abandoning home country bias and embracing global diversification.
[PLUS] Weekly Town Hall w/ Willie Delwiche
This is the video recording of the December 1st, 2022, Weekly Town Hall w/ Willie Delwiche.
12/1/22 2:00 PM ET [Read more…]
[PLUS] December Weight of the Evidence Dashboard: A Persistent Bear Tests Patience
From the desk of Willie Delwiche.
The Scales are unchanged this month, continuing to tip toward risk and away from opportunity.
A strong finish to November has renewed hopes that the 2022 bear market is moving from present reality to past experience. The weight of the evidence argues against jumping to that conclusion just yet. Simply put, we have not seen enough market strength to justify looking past the still present macro concerns. The evidence remains cautious and so do we.
Our Weight of the Evidence Dashboard fills in the details and includes a few charts that have our attention heading into December.
[PLUS] Weekly Sentiment Report: August Highs Are Holding
From the desk of Willie Delwiche.
The S&P 500 and various measures of investor sentiment all remain below their August highs. We are getting neither the broad increase in optimism nor the improving price action needed to argue that the bounce off of the October lows is the beginning of a new bull market.
Why It Matters: Price and sentiment often move in tandem. Optimism rebounded as stocks rallied off its October low but has struggled (like it the S&P 500 itself) to eclipse it’s summer highs. All three sentiment indicators have now ticked lower and we are seeing some evidence that the upside price momentum that accompanied the rally off of last month’s lows is starting to wane. Investors getting impatient with an unexpectedly persistent downtrend in prices could be reflected in sentiment indicators moving back toward their recent lows. Ultimately, time will tell how investors respond to their resolve being tested.
In this week’s Sentiment Report we take a closer look at the latest options data and how various groups of investors are responding to the latest market developments.
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