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, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

We’ve made some changes to our ASC+Plus Dynamic Portfolios. 

With the weight of the evidence turning more bullish, we have increased our equity exposure in the cyclical and tactical opportunity portfolios. 

Within these portfolios we have also moved away from equity areas that are struggling to participate in the rally and re-focused exposure on areas that are experiencing upside momentum.

• Consumer Discretionary has been the top-performing large-cap sector on a short-term basis and was one of only two large-cap sectors to make new highs last week (Information Technology was the other). The sector’s relative strength at the large-cap level is not echoed among mid and small-caps, but it is still fairly broad-based (it’s equal-weight ranking matches its cap-weight ranking).
• Energy and Financials have lagged on a short-term basis, but remain at the top of our relative strength rankings across size levels.  

From the desk of Willie Delwiche.

Plenty of time is wasted and much virtual ink is spilled pulling apart and putting back together various pronouncements by the Federal Reserve and other central banks. With an FOMC meeting on tap, this coming week will likely be more of the same. Rather than focus on what central bankers are saying, it might be more productive to watch what they’re doing. The average central bank (Fed, ECB, BoJ, PBoC) balance sheet has expanded by 10x over the past 20 years (that’s a 25% increase per annum). There is no realistic expectation that balance sheets will contract any time soon. But the pace of expansion is likely to slow (the Fed is expected to announce a timetable for a tapering of its balance sheet expansion this coming week), and interest rates around the world are on the rise. All of the net gains for global equities over the past 30-plus years have come when a majority of central banks have been in easing mode. Currently, just under 60% of central banks are still easing. But, as inflation remains persistent, we expect the number to fall and liquidity headwinds to rise.

This is the video recording of the October 28th Weekly Town Hall w/ Willie Delwiche & JC Parets

10/28/21 3PM ET

From the desk of Willie Delwiche.

"We make our decisions, and then our decisions make us."

I came across that quote in a book I was reading this week (no apologies here -- I read books -- that's what I do).

That prompted me to think about how it was this time last year that I had some decisions to make about what was next in my professional journey. JC and I talked about my joining the All Star Charts team. I (we) made the decision to do just that -- and while the impacts of that decision continue to unfold, I've not regretted it for a moment. And knowing what I know now, that decision seems more obvious than it did when I made it a year ago.

It's not just the active decisions that form us. Where we pay attention matters as well. The 18th century poet William Blake was ahead of his time when he observed how "we become what we behold."

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

Key Takeaways:

• China weakness has meant moving away from EEM for Emerging Market Exposure
• New highs from Taiwan could point to improving trends for China and EEM
• Canada benefitting from exposure to Energy & Financials

Emerging markets have been dealing with the opposite problem that we have discussed in the US. In the US, mega-cap strength has supported the indexes as conditions beneath the surface struggled. In Emerging Markets, mega-cap weakness (China accounts for nearly 22% of EEM) has weighed on the indexes as conditions beneath the surface improved. The goal of this piece is to help discuss how we will know if and when that condition changes. 

Given the struggle at the top of the index, we have been utilizing India, Russia, and Saudi Arabia (which together account for 19% of EEM) for Emerging Market exposure. All three of these (as well as FM, Frontier Markets) have made frequent appearances on our new high lists.

• The Energy and Financials sectors continue to be areas of strength on both a relative and absolute basis. They are the top ranked sectors in our relative strength work and finished last week at news highs. 
• Real Estate has rebounded in relative strength and is in the third spot overall. At the small-cap and mid-cap level, Real Estate finished at new highs last week. 
• Consumer Staples, Utilities, and Health Care remain the weakest sectors. 

I'm sorry that I had to miss yesterday's Town Hall.

I had a great slide deck prepared (ASC+Plus subscribers can click below for access) and was excited to walk through it with everyone. We are seeing a breakout in our risk on / risk off ratio, continued improvement in sector-level trends, and evidence that sentiment in Emerging Markets looks pretty washed out. While there may be opportunities for following strength and rotating away from US equity exposure, Germany (which is at a 17+ year low versus the S&P 500) is not one of them. I'm sure we will have a chance to talk through many of these things in the days ahead.

As some of you know by now, rather than spending the morning and early-afternoon getting ready for our Town Hall conversation, I was saying a final good-bye to the gentlest of spirits and an ever-faithful friend. Our family dog, Banjo, had a health emergency from which the vet told us there was no reasonable chance of recovery.