From the desk of Willie Delwiche.

We discussed the need to look beneath the surface of the market in our Weekly Townhall and I  mentioned it again on the Townhall Takeaway Livestream. This chart for the weekend hits that point one more time. When we look across the global market composites, Emerging Markets have experienced the largest drawdown from their 52-week high. When we look beneath the surface of the indexes, the median emerging market has had a smaller drawdown than the median Developed Market or the median Frontier Market. When we look at it from a country-level perspective, trends in Emerging Markets vs Developed Markets are stronger than they’ve been at any point in the past decade. That isn’t reflected in the indexes yet, but it may just be a matter of time until we see that transition. Speaking of transitions, while this chart is still looking at the distance below 52-week highs, we are starting to find ourselves thinking more about where things are relative to their 52-week lows.    

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From the desk of Willie Delwiche.

This year’s March Madness has been maddening indeed. Brackets were busted early and often. Three of the #1 seeds lost before they even had a chance to play for a trip to the Final Four. As challenging (and exciting) as that was, I’ve got a deeper frustration with it: It’s a passive participant’s paradise. 

Let me explain. 

Before the field of 64 is even set, we get deep dives on the various teams and their prospects. Stats are analyzed, stories are told. When the brackets are set, the picking begins. Though no games have yet been played, participants reason through potential matchups, from the first round all the way through to the finals. Bragging rights (and often more than that) are at stake for having properly allocated all your resources before the first whistle is blown. It’s about setting and forgetting. No feedback loops, no opportunities to adjust exposure based on changing tournament conditions.

This is the video recording of the March 31st Weekly Town Hall w/ Willie Delwiche & JC Parets

03/31/22 2:00 PM ET

From the desk of Willie Delwiche.

Key Takeaway: Price action has a way of changing sentiment, and the recent bout of strength has brought signs of hope. Optimism is on the rise with an uptick in bulls, a rebound in both the II and AAII bull-bear spreads, and an increase in exposure by active equity managers. Yet, bears linger and the drop in put/call ratios is driven by decreasing put activity. This speaks to less of a risk-off tone rather than a definitive sign of risk-on behavior. Though optimism is in the air, it’s going to take further improvements in trend, momentum, and breadth for bears to change their tune in support of a sustained rally.                   

Sentiment Report Chart of the Week: Breadth Backdrop Improving

The rally off of the mid-March stock market lows has investors feeling better (or at least less bad). This improved mood (and the rebound in price that helped fuel it) will likely have more staying power if it’s accompanied by a better breadth backdrop. We are heading in that direction, but there is...

From the desk of Willie Delwiche.

Key Takeaways:

• 2022 poses an asset allocation challenge
• Commodities catching up, but a long way from being caught up
• Dynamic exposure allows trend following in a portfolio context

The first quarter still has two days of life left in it, though for many investors its end cannot come soon enough. The S&P 500 made a new high on the first day of the year, but has been underwater ever since. Bonds have been in the red all year, suffering their worst decline in decades. Commodities (and the minority of investors that have exposure there) enjoyed their best quarter in decades. 

Each of these asset classes has its own story and dominant theme from Q1. For stocks, it’s the longest stretch of more new lows than new highs since the financial crisis. For bonds, it’s that yields around the world are moving to their highest levels in years (US & German yields get a lot of attention...

From the desk of Willie Delwiche.

Key Takeaways:

• March rally takes some sting off of a challenging Q1.
• Short-term strength not yet reflected in longer-term trends.
• More new lows than new highs in the US, but Emerging Market new high list expands.

Stocks continued to bounce off of their March lows last week. It’s not quite lipstick on a pig but this move does take some of the sting off of what has been a weak Q1 for equities. All eleven sectors in the S&P 500 are now in positive territory for March, but only three (Energy, Utilities and Financials) have YTD gains and two of those, just barely so. Four sectors, accounting for more than 50% of the market cap of the S&P 500, are still down 8% or more heading into the final week of the quarter.

From the desk of Willie Delwiche.

There is still one week to go before it ends, but Q1 2022 has been a remarkable quarter in many respects. If this year has taught us anything, it’s that a lot could change between now and when the closing bell rings next Thursday. But as it stands now, this will be the first down quarter for stocks since Q1 2020 and it will go down as the worst quarter for bonds in a very long time. Both stocks and bonds falling by more than just a marginal amount makes this a particularly forgettable quarter for investors in passive 60/40-type portfolios. There has been no place for them to hide. Not strength to offset weakness. Recent weak quarters for balanced portfolios saw strength in bonds offsetting weakness in stocks. Recent weak quarters for bonds have coincided with strength in stocks. The only somewhat similar experience in the past quarter century was Q3 2008 - bonds were down but only modestly. Two takeaways: First, this helps explain some of the dour mood among investors. Second, quarterly rebalancing this time around will have otherwise passive investors sell what has been weak (stocks) and buying what has been even weaker (bonds...

This is the video recording of the March 24th Weekly Town Hall w/ Willie Delwiche & JC Parets

03/24/22 2:00 PM ET

From the desk of Willie Delwiche.

I had a chance to catch up with my friend Dave Keller this week. We talked about the overall market environment, touching specifically on market breadth and the implications of an accelerated tightening cycle by the Fed. You can check out a replay of the entire conversation here. 

At one point, Dave asked me about my perspective on one of the most important questions facing investors right now. It’s about labeling oneself as either a growth investor or a value investor, and how to operate within that framework in the current market environment.  

It’s important because it is pervasive. It’s important because it can be expensive. 

It’s important, but it’s also weird, leading investors to discount reality and operate within narratives. 

From the desk of Willie Delwiche.

Our dynamic portfolio update discusses some changes we've made to our holdings and takes a look at how the portfolios are faring in a period of heightened volatility for static 60/40 portfolios. We re-positioned our foreign equity exposure to move into areas of strength and adjusted our cash levels to stay in harmony with our risk indicators and the overall message from the weight of the evidence.

From the desk of Willie Delwiche.

Key Takeaway: Investors are identifying with fear and pessimism as bears dominate the surveys. But we have yet to see the type of pessimism that drives market participants to do something about it. The disconnect between what investors are saying and what they are actually doing is evident in the juxtaposition of bearish surveys and elevated stock allocations. This speaks to an underlying confidence that remains unbroken and a lingering optimism susceptible to further unwind. Combined this with lackluster breadth readings, our global trend indicators nearing new lows, and a general lack of risk appetite and it’s difficult to claim the unwind in sentiment is complete.           

Sentiment Report Chart of the Week: Unwind Complete When Appetite Returns

Even with historical context, identifying real-time sentiment extremes is a challenge. It is said, “nothing changes sentiment like price,” and I would add the caveat that price does not always persist. Seeing evidence that a price move...

From the desk of Willie Delwiche.

Key Takeaways:

• Stocks struggle when the Fed is aggressive
• Pace of tightening likely to be more than twice as fast as last cycle
• Bond yields at multi-year highs, rising at fast pace in a decade

After waiting and watching as inflation soared to its highest level in 40 years (and got there at the fastest pace in nearly three-quarters of a century), the Fed now finds itself behind the curve and needing to accelerate quickly. Post-mortems can be done later, and future historians can write papers about how the Fed was too focused on labor supply and supply chains and not focused enough on money supply as it delayed lift-off. Our focus is not on those “why’s” but on these “what’s”: what is the path for rates going forward and what is the impact of this for the stock and bond markets. 

Let’s start with the punchline and work back through the evidence. Stocks typically struggle for traction when the Fed is pursuing an accelerated pace of tightening. This is a sharp departure from the...