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Market/Model Commentary
Currently the active model portfolio as defined by our 5-factor model is:
ECAM 5-Factor Composite Model
"Slow and Steady wins the race"
The Hare and the Tortoise
Aesop (Greek slave & fable author 620 BC - 560 BC)
"Technical Analysis is a windsock, not a crystal ball"
Carl Swenlin (Technical Analyst)
"Investing is the intersection of economics and psychology"
Seth Klarman (Hedge fund Manager, Baupost Group)
"Everyone's got a plan ..... until they get punched in the face"
Mike Tyson (Former World Heavyweight Boxing Champion)
The Hare and the Tortoise
Aesop (Greek slave & fable author 620 BC - 560 BC)
"Technical Analysis is a windsock, not a crystal ball"
Carl Swenlin (Technical Analyst)
"Investing is the intersection of economics and psychology"
Seth Klarman (Hedge fund Manager, Baupost Group)
"Everyone's got a plan ..... until they get punched in the face"
Mike Tyson (Former World Heavyweight Boxing Champion)
Latest Updates
DOW JONES GLOBAL INDEX
(19 April 2024)
Global equities were lower this past week with a percentage return (as measured by the Dow Jones Global Index) of -2.90%. This week price closed above the 40 week moving average and below price support @ 571-579.
Technical Analysis Summary (Dow Jones Global Index)
Technical Analysis for W1DOW by TradingView
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Dow Jones Global Index Historical Monthly Returns
The month of March closed with a gain of +2.9%. We are now within April which has historically been the strongest month within the seasonal cycle:
- +50.3% cumulative percentage return over the past 24 years.
- 75.0% win percentage.
- greatest gain +11.7% (2009)
- greatest loss -8.0% (2022)
Weekly Global Macro Review
U.S. Equities
The major US equity benchmarks retreated for the week amid heightened fears of conflict in the Middle East and some signs of persistent inflation pressures that pushed long-term Treasury yields higher. Large-caps held up better than small-caps, with the Russell 2000 Index suffering its biggest daily decline in almost two months on Wednesday and falling back into negative territory for the year to date. Growth stocks also fared better than value shares, which were weighed down by interest rate-sensitive sectors, such as real estate investment trusts (REITs), regional banks, housing, and utilities.
The major US equity benchmarks retreated for the week amid heightened fears of conflict in the Middle East and some signs of persistent inflation pressures that pushed long-term Treasury yields higher. Large-caps held up better than small-caps, with the Russell 2000 Index suffering its biggest daily decline in almost two months on Wednesday and falling back into negative territory for the year to date. Growth stocks also fared better than value shares, which were weighed down by interest rate-sensitive sectors, such as real estate investment trusts (REITs), regional banks, housing, and utilities.
S&P 500:
DJIA: NASDAQ 100: S&P 400 Mid-cap: Russell 2000 Small Cap: |
-1.6%
-2.4% -0.6% -3.0% -2.9% |
The primary factor weighing on sentiment appeared to be Wednesday morning’s release of the Labor Department’s consumer price index (CPI) data, which showed headline prices rising by 0.36% in March, right in line with February’s increase, in contrast with consensus hopes for a small decline from the month-earlier pace. A rebound in the price of medical services (from -0.1% in February to +0.6% in March) was partly to blame, as was a continuing sharp rise in transportation services costs, which rose 10.7% over the preceding 12 months—fed largely by increases in the cost of car insurance. Overall inflation rose 3.5% over the preceding 12 months, its biggest gain since September.
More concerning may have been a material increase in so-called supercore inflation, which tracks services prices excluding energy and housing costs, which policymakers have acknowledged are a lagging indicator of overall inflation trends. Supercore inflation jumped 0.7% in March and 4.8% over the past 12 months, substantially higher than expectations and its biggest increase in 10 months.
In the wake of the report, futures markets began pricing in roughly a 20% chance of a rate cut at the Federal Reserve’s June policy meeting versus roughly 50% before its release. The week was a busy one for commentary from central bank officials—with 11 scheduled to speak, and they seemed to confirm a change in their perspective following the CPI release. In particular, Richmond Fed chief Thomas Barkin said that the latest data did not increase his confidence in disinflation, and Boston Fed President Susan Collins said that the recent data argue against an imminent need to cut rates.
Thursday’s release of producer price inflation data seemed to help calm inflation fears and help equity markets recoup a portion of their losses. Producer prices rose 0.2% in March, a tick below expectations and well under February’s 0.6% increase. Input goods prices fell 0.1%, continuing a recent pattern of goods deflation that had been interrupted by a 1.2% surge in April.
Stocks pulled back sharply to end the week, however, in the wake of reports that Iran was preparing to directly attack facilities on Israeli soil for the first time. Oil prices rose on the news, along with the U.S. dollar, which is typically viewed as a “safe haven” in times of international turmoil. Meanwhile, the CBOE Volatility Index (VIX), Wall Street’s so-called fear gauge, spiked to its highest level since November.
US Bonds
The consumer inflation data helped drive the yield on the benchmark 10-year U.S. Treasury note to its highest intraday level since November before Treasuries rallied on Friday as investors sought out U.S. dollar-based assets. (Bond prices and yields move in opposite directions.)
Both investment-grade and high yield corporate bonds wavered following the CPI report, but issuance appeared to be met with continued healthy demand.
More concerning may have been a material increase in so-called supercore inflation, which tracks services prices excluding energy and housing costs, which policymakers have acknowledged are a lagging indicator of overall inflation trends. Supercore inflation jumped 0.7% in March and 4.8% over the past 12 months, substantially higher than expectations and its biggest increase in 10 months.
In the wake of the report, futures markets began pricing in roughly a 20% chance of a rate cut at the Federal Reserve’s June policy meeting versus roughly 50% before its release. The week was a busy one for commentary from central bank officials—with 11 scheduled to speak, and they seemed to confirm a change in their perspective following the CPI release. In particular, Richmond Fed chief Thomas Barkin said that the latest data did not increase his confidence in disinflation, and Boston Fed President Susan Collins said that the recent data argue against an imminent need to cut rates.
Thursday’s release of producer price inflation data seemed to help calm inflation fears and help equity markets recoup a portion of their losses. Producer prices rose 0.2% in March, a tick below expectations and well under February’s 0.6% increase. Input goods prices fell 0.1%, continuing a recent pattern of goods deflation that had been interrupted by a 1.2% surge in April.
Stocks pulled back sharply to end the week, however, in the wake of reports that Iran was preparing to directly attack facilities on Israeli soil for the first time. Oil prices rose on the news, along with the U.S. dollar, which is typically viewed as a “safe haven” in times of international turmoil. Meanwhile, the CBOE Volatility Index (VIX), Wall Street’s so-called fear gauge, spiked to its highest level since November.
US Bonds
The consumer inflation data helped drive the yield on the benchmark 10-year U.S. Treasury note to its highest intraday level since November before Treasuries rallied on Friday as investors sought out U.S. dollar-based assets. (Bond prices and yields move in opposite directions.)
Both investment-grade and high yield corporate bonds wavered following the CPI report, but issuance appeared to be met with continued healthy demand.
Europe/UK Equities
In local currency terms, the pan-European STOXX Europe 600 Index ended -0.3% lower. Major stock indexes also fell.
German DAX:
French CAC: Italian MIB: Spanish IBEX: U.K. FTSE 100: |
-1.3%
-0.6% -0.7 % -2.1% +1.1% |
The ECB left its key deposit rate at a record high of 4.0%, as expected, but said that if an updated inflation assessment, which is due in June, “were to increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.” Asked if the strong U.S. inflation data would affect the policy path, she replied that the ECB was “data-dependent, not Fed-dependent” and that U.S. and Eurozone inflation were “not the same.”
UK gross domestic product (GDP) in February expanded 0.1% sequentially, thanks to a rebound in manufacturing output. The Office of National Statistics also revised January GDP growth 0.3% from 0.2%, suggesting the economy exited recession. In the three months through February, gross domestic product expanded 0.2%.
Investor confidence in the Eurozone rose in April to its highest level in more than two years, according to an index compiled by Sentix. The economic expectations barometer turned modestly positive for the first time since Russia invaded Ukraine.
In Germany, industrial production in February rose 2.1% sequentially, the second consecutive month of strong gains, due to increased construction output. However, in the three months through February, production was 0.5% lower than in the previous period.
Euro/UK Bonds
After trending lower early in the week, yields on French, German, and Italian government bonds jumped on news that U.S. inflation had accelerated faster than expected in March. Yields subsequently pulled back from these highs as the European Central Bank (ECB) held key rates steady but hinted strongly that it might lower them soon. UK bond yields rose, lifted in part by hawkish comments from Bank of England policymaker Megan Greene, who warned that “rate cuts should still be a way off.”
UK gross domestic product (GDP) in February expanded 0.1% sequentially, thanks to a rebound in manufacturing output. The Office of National Statistics also revised January GDP growth 0.3% from 0.2%, suggesting the economy exited recession. In the three months through February, gross domestic product expanded 0.2%.
Investor confidence in the Eurozone rose in April to its highest level in more than two years, according to an index compiled by Sentix. The economic expectations barometer turned modestly positive for the first time since Russia invaded Ukraine.
In Germany, industrial production in February rose 2.1% sequentially, the second consecutive month of strong gains, due to increased construction output. However, in the three months through February, production was 0.5% lower than in the previous period.
Euro/UK Bonds
After trending lower early in the week, yields on French, German, and Italian government bonds jumped on news that U.S. inflation had accelerated faster than expected in March. Yields subsequently pulled back from these highs as the European Central Bank (ECB) held key rates steady but hinted strongly that it might lower them soon. UK bond yields rose, lifted in part by hawkish comments from Bank of England policymaker Megan Greene, who warned that “rate cuts should still be a way off.”
Japan
Japan’s stock markets gained over the week, with the Nikkei 225 Index up +1.4% and the broader TOPIX rising +2.1%. As the Japanese yen hovered close to a 34-year low, investors’ focus was on whether the country’s authorities would step in to support the currency.
The yen weakened from the high-JPY 151 range against the U.S. dollar level to beyond the 152 level that many investors have come to regard as the point at which Japanese authorities could be expected to intervene in the foreign exchange markets to prop up the currency. No such intervention was forthcoming during the week, although finance ministry authorities stated that they were looking at the factors behind the currency moves and that they would act on excessive yen weakness.
Bank of Japan (BoJ) Governor Kazuo Ueda, in turn, ruled out responding to a weak yen with a rate hike. He emphasized that the central bank would not change its monetary policy directly in response to exchange rate moves. The BoJ recently ended its negative interest rate policy and unwound its program of yield curve control, in response to signs that prices were rising in tandem with wages, a stated precondition for monetary policy tightening. Market expectations now appear to have converged around two further rate hikes within a one-year period.
It is worth noting that Japan’s monetary policy remains among the most accommodative in the world, and expectations are that financial conditions will also remain accommodative for the time being. A combination of historic weakness in the yen and accommodative monetary policy provide a favorable backdrop for Japan’s stock indexes, where many of the largest constituents are exporters deriving a sizable share of their earnings from overseas.
China
Chinese stocks retreated as weak inflation data underscored the lackluster demand hanging over China’s economy. The Shanghai Composite Index declined -1.6%, while the blue chip CSI 300 gave up -2.6%. In Hong Kong, the benchmark Hang Seng Index ended nearly flat from last week after apprehensions about the flagging recovery pared earlier gains.
China’s consumer price index rose a below-consensus 0.1% in March from a year earlier, down from February’s 0.7% rise, as food costs retreated following a brief increase during the Lunar New Year holiday in February. Core inflation rose by 0.6% but was weaker than February’s 1.2% increase. Meanwhile, the producer price index fell 2.8% from a year ago, marking its 18th month of declines and accelerating from February’s 2.7% drop.
China’s exports and imports fell in March and reversed gains from the first two months of the year. Exports shrank a worse-than-expected 7.5% in March from a year ago compared with a 7.1% rise in the January to February period. Meanwhile, imports dipped 1.9%, down from 3.5% growth in the first two months of the year. The latest results dealt a setback to China’s reliance on external demand to bolster its economy and added pressure on Beijing to ramp up stimulus measures as it tries to achieve its 5% annual growth target set at the National People’s Congress in March.
Weekly Performance
U.S. Indices
Dow -2.3% to 38,904. S&P 500 -1.0% to 5,204. Nasdaq -0.8% to 16,249. Russell 2000 -3.1% to 2,060. CBOE Volatility Index +23.2% to 16.03.
S&P 500 Sectors
Consumer Staples -2.7%. Utilities -0.7%. Financials -1.4%. Telecom +2.5%. Healthcare -3.1%. Industrials -0.2%. Information Technology -1.0%. Materials -0.1%. Energy +3.9%. Consumer Discretionary -1.9%. Real Estate -3.0%.
World Indices
London -0.5% to 7,911. France -1.8% to 8,061. Germany -1.8% to 18,164. Japan -3.4% to 39,010. China +0.9% to 3,069. Hong Kong +1.1% to 16,724. India +0.8% to 74,248.
Commodities and Bonds
Crude Oil WTI +4.3% to $86.73/bbl. Gold +4.2% to $2,349.1/oz. Natural Gas +1.3% to 1.785. Ten-Year Bond Yield -0.2 bps to 4.4.
Forex and Cryptos
EUR/USD +0.42%. USD/JPY +0.2%. GBP/USD +0.13%. Bitcoin -2.8%. Litecoin -4.5%. Ethereum -5.3%. XRP -5.0%.
Dow -2.3% to 38,904. S&P 500 -1.0% to 5,204. Nasdaq -0.8% to 16,249. Russell 2000 -3.1% to 2,060. CBOE Volatility Index +23.2% to 16.03.
S&P 500 Sectors
Consumer Staples -2.7%. Utilities -0.7%. Financials -1.4%. Telecom +2.5%. Healthcare -3.1%. Industrials -0.2%. Information Technology -1.0%. Materials -0.1%. Energy +3.9%. Consumer Discretionary -1.9%. Real Estate -3.0%.
World Indices
London -0.5% to 7,911. France -1.8% to 8,061. Germany -1.8% to 18,164. Japan -3.4% to 39,010. China +0.9% to 3,069. Hong Kong +1.1% to 16,724. India +0.8% to 74,248.
Commodities and Bonds
Crude Oil WTI +4.3% to $86.73/bbl. Gold +4.2% to $2,349.1/oz. Natural Gas +1.3% to 1.785. Ten-Year Bond Yield -0.2 bps to 4.4.
Forex and Cryptos
EUR/USD +0.42%. USD/JPY +0.2%. GBP/USD +0.13%. Bitcoin -2.8%. Litecoin -4.5%. Ethereum -5.3%. XRP -5.0%.
WEEKLY ASSET CLASS MONITOR
(week ending 19 April 2024)
(week ending 19 April 2024)
Asset Class
|
Region
|
ETF Ticker
|
Weekly
Return |
2024 Return
|
Equities
|
World
U.S. Europe Asia Pacific ex-Japan Emerging Market |
VT
VTI VGK AAXJ VWO |
-2.50%
-3.05% -0.62% -1.99% -1.71% |
+2.40%
+3.74% +0.87% -1.62% -0.42% |
Bonds
|
U.S. Bonds
International Bonds Global Bonds |
BND
BNDX BNDW |
-0.58%
-0.58% -0.62% |
-2.91%
-1.04% -2.08% |
Real Estate Equities
|
Global Real Estate Equities
|
REET
|
-2.53%
|
-8.54%
|
Precious Metals Equities
|
Global Gold Miners
Global Junior Gold Miners |
RING
GDXJ |
+0.48%
+0.48% |
+10.41%
+11.29% |
GLOBAL EQUITY MARKET MONITOR
The past 4 years have been very challenging for global equities. They had a wicked roller-coaster ride in 2020 on the back of the Covid pandemic where they peaked on 12 Feb 2020 and fell dramatically (-34%) into their 23 Mar lows. They then rebounded and regained their losses by year-end.
For most of 2021 they remained largely in a "holding pattern" digesting their gains but declined considerably throughout 2022 before bottoming in October. Strong returns have been seen since the Oct/22 bottom with global equities recently exceeding past all-time highs (previous highs for all regions shown as blue box)
For most of 2021 they remained largely in a "holding pattern" digesting their gains but declined considerably throughout 2022 before bottoming in October. Strong returns have been seen since the Oct/22 bottom with global equities recently exceeding past all-time highs (previous highs for all regions shown as blue box)
Asset Class Return Monitor
(for week ending 12 April 2024)
(for week ending 12 April 2024)
Equities Legend:
Bonds Legend:
Currencies Legend:
Commodities Legend:
- Vanguard Total World Stock ETF (VT): (Cyan)
- Vanguard Total U.S. Stock Market ETF (VTI): (Red)
- Vanguard FTSE Europe ETF (VGK): (Lime Green)
- Ishares MSCI Asia ex-Japan ETF (AAXJ): (Dark Blue)
- Vanguard FTSE Emerging Markets ETF (VWO): (Pink)
Bonds Legend:
- Vanguard Total U.S. Bond Market ETF (BND): (Black)
- Vanguard Total International ex-U.S. Bond ETF (BNDX): (Green)
Currencies Legend:
- U.S. Dollar Index (Cash Settlement EOD) ($USD): (Orange)
- Euro (Philadelphia Index) ($XEU): (Maroon)
Commodities Legend:
- PowerShares DB Commodity Index Tracking Fund (DBC): (Purple)
- SPDR Gold ETF (GLD): (Sky Blue)
Past Week Asset Class returns
- Over the past week global equities (as measured by the Vanguard Total World Stock ETF (shown in CYAN) lost -1.82%.
- Emerging markets were the top performing equity region this past week with European markets lagging.
- U.S. bonds (Black) and International bonds (Green) were lower on the week.
- Commodities were lower on the week with the U.S. Dollar index up +1.87%.
Year-to-Date (2024) Asset Class returns
- In 2024 global equities (as measured by the Vanguard Total World Stock ETF shown in CYAN) have gained +5.00%.
- US market equities are the top performing equity region year-to-date with Asia Pacific ex-Japan markets lagging.
- Bonds have had negative returns in 2024 with U.S. bonds (Black) under-performing International Bonds (Green).
- The US Dollar index has gained +4.93% year-to-date.
The stock market is driven by a combination of corporate profits, trends, economic data, fund flows, expectations, greed, fear, opinions, analysis, geopolitical events and human nature. These variables are often in conflict with one another (especially in the short run) and form a sine-wave cycle of investor psychology which begins with optimism, peaks with euphoria, bottoms with despair and returns to optimism.
It must be reemphasized a complete market cycles is composed of 2 distinct cycles/phases: a "bull 1/2 cycle" and a "bear 1/2 cycle".
The Math of Losses
- a 20% loss requires a 25% gain to return to breakeven
- a 30% loss requires a 43% gain to return to breakeven
- a 40% loss requires a 67% gain to return to breakeven
- a 50% loss requires a 100% gain to return to breakeven
- a 60% loss requires a 150% gain to return to breakeven
This is why it is so important to not let losses continue in the face of a bear market decline and why we advocate phased movements into cash as our 5-factor model reverts to Red. The below graphic represents how we move within equity markets through a complete sine-wave market cycle:
World Regional Equity Monitor
We use the following U.S. exchange traded funds to monitor equity performance for the various world regions:
- World Equities: Vanguard Total World ETF (Cyan)
- U.S. Equity: Vanguard Total Market ETF (Red)
- European Equity: Vanguard FTSE Europe ETF: (Lime Green)
- Japan Equity: iShares Japan ETF (Black)
- Asia ex-Japan Equity: iShares MSCI All-Country Asia ex-Japan ETF (Blue)
- Emerging Market Equity: Vanguard FTSE Emerging Market ETF (Pink)
1 Year Rolling Regional Equity Performance
- Over the past 12 month rolling period regional equity performance has been positive for monitored regions.
- The strongest equity regions over the past 12 month have been US/Japanese markets with European/Asia Pacific ex-Japan/Emerging market equities lagging.
- Overall world equity performance (as measured by the Vanguard Total World ETF) have returned +19.41% (including dividends) over the past 12 month rolling period.
3 Month Rolling Regional Equity Performance
- Over the past 3 month rolling period the strongest performing world equity region has been US markets with European markets the weakest.
- Positive equity returns have been evident over the past quarter (3 months) in monitored regions.
1 Month Rolling Regional Equity Performance
- Over the past 1 month rolling period the strongest performing world equity region has been US markets with European markets the weakest.
- Negative equity returns have been achieved over the past month for most monitored regions.
Past Week Regional Equity Performance
- Over the past week the major global equities were lower with Japanese markets outperforming other regions.
Latest Global Equity "Big Picture"
World equity market returns are monitored via the following index and ETF equity charts:
- Dow Jones Global Market Index (cap-weighted)
- Value Line Geometric U.S. Index (equal-weighted)
- Global Dow Index (equal-weighted)
- MSCI ACWI ETF (cap-weighted)
Dow Jones Global Market Index
(market cap weighted index)
For the week the Dow Jones Global Index had a loss of -2.90%. Price closed above the 52 week moving average (green line) and below support @ 575-579.
Value Line Geometric Index and Global Dow Index
(equal weighted indexes)
The Value Line Geometric Index ($XVG) is the median price performance of 1700 U.S. companies equal weighted (as opposed to most indexes which are market cap weighted) into an index. The Global Dow index ($GDOW) is a measure of the top 150 international companies equal weighted within the index.
These indexes are important as they equal-weight the price performance of all the companies held within the respective index. This removes the distortions associated with a small group of highly valued companies (which may be performing well) masking the performance of struggling companies and represents a good overview of overall internal equity breadth/strength.
These indexes are important as they equal-weight the price performance of all the companies held within the respective index. This removes the distortions associated with a small group of highly valued companies (which may be performing well) masking the performance of struggling companies and represents a good overview of overall internal equity breadth/strength.
Value Line Geometric Index ($XVG) Weekly
Global Dow Index ($GDOW) Weekly
iShares MSCI ACWI ETF
(market cap weighted ETF)
The iShares MSCI ACWI (All Country World Index) ETF is used as a benchmark to compare the performance of the various broad-based equity funds available in the Emirates Group Provident Scheme (EGPS) A/B/C accounts. It serves as a benchmark to determine how equity markets are performing on a worldwide basis. This assists in determining 2 parameters; whether to be invested in equities and also which funds within the EGPS offer the best performance relative to the benchmark.
The ETF is composed of the following regional components/weightings:
The ETF is composed of the following regional components/weightings:
ACWI Monthly Chart
Global equity markets bottomed in Oct 2022 and have reached new all-time highs.
For the month of April ACWI has lost -2.54%. It closed the month of March above the 12 month simple moving average (blue moving average on the chart above) keeping the long term trend BULLISH until month end.
For the month of April ACWI has lost -2.54%. It closed the month of March above the 12 month simple moving average (blue moving average on the chart above) keeping the long term trend BULLISH until month end.
ACWI Weekly Chart
This past week ACWI lost -1.74%. Price closed above the 40 week simple moving average (shown in GREEN) and this week closed above support @ 101.98-102.16.
World Equity Market Regional Relative Rotation Graphs
Below is a graph of 24 major regional equity market ETF's + ACWI (our world equity benchmark) shown on a Relative Rotation chart measured weekly with a 10 week look-back period (which forms the "tail" of the ETF). This graph allows us to observe over time how various regional ETF's are moving relative to both each other and also relative to cash.
- Leading (Green): (Momentum Positive + Price Relative Strength Positive)
- Weakening (Yellow): (Momentum Negative + Price Relative Strength Positive)
- Lagging (Red): (Momentum Negative + Price Relative Strength Negative)
- Improving (Blue): (Momentum Positive + Price Relative Strength Negative)
Given the cyclical nature of momentum and price within equity markets, in general the RRG charts will cycle in a clockwise manner (though not necessarily will each pass through all 4 quadrants as it is possible to rotate through an adjacent quadrant only).
Weekly Regional (Country) Relative Rotation Graphs (long term)
The RRG trend analysis status is currently BULLISH for world equities:
- ACWI Weekly Quadrant: "LEADING" Quadrant
- 24 Country Net Score: POSITIVE
- ACWI price Relative Strength (horizontal axis): POSITIVE
- ACWI price Momentum (vertical axis): POSITIVE
Coincident Equity Market Indicators
Crude Oil
Crude oil was lower over the past week and has returned to its previous range. The 3-month correlation between crude oil and global equities is positive.
Gold
Gold was higher over the past week and closed above support @ 2028. The 3-month correlation between gold and global equities is positive.
Commodities
Commodities were lower over the past week and closed above their recent range. The 3-month correlation between commodities and global equities is positive.
U.S. 30 Year Treasury Bond
U.S. 30 year bond prices were lower over the past week. The 3-month correlation between US government bonds and global equities is neutral.
Current 5-Factor Model Indications
The combined 5-Factor quantitative model is currently YELLOW (neutral). This indicates an even level of risk at present. The 5-Factor model currently has the following sub-model readings:
Economic Model
The Economic model is currently GREEN. The 1-year rate-of-change in global economic data had moved towards contraction but has stabilized over the past several months. The model is composed of numerous inputs including data from the following sources:
Forward Forecast Data:
Forward Forecast Data:
- OECD Composite Leading Indicators (CLI)
- J.P. Morgan Global Purchasing Managers (PMI) Index
- World Bank Monthly Global Economic Report
OECD Composite Leading Indicators
(data as of 05 April 2024)
The OECD Composite Leading Indicator (CLI) is designed to predict business cycle changes 6-9 months in advance. It provides early signals of turning points in business cycles showing fluctuation of the economic activity around its long term potential level.
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Below is our latest heat-map of the Composite Leading Indicators for various monitored regions.
Ideally we want to see the majority of regions indicating a CLI > 100 as well as steady/improving trends month-over-month and year-over-year.
- Red/Green numbers indicates above/below average future projected economic growth.
- Red/Green boxes indicates CLI change month/month and year/year.
Ideally we want to see the majority of regions indicating a CLI > 100 as well as steady/improving trends month-over-month and year-over-year.
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J.P. Morgan Purchasing Managers Index (PMI)
(04 April 2024)
(04 April 2024)
The J.P. Morgan monthly PMI Report is based on the results of manufacturing and service sector surveys covering over 18,000 purchasing executives in over 40 countries. Together these countries account for an estimated 89% of global gross domestic product (GDP).
Questions are asked about real events and are not opinion based. Data are presented in the form of diffusion indices, where an index reading above 50.0 indicates an increase in the variable since the previous month and below 50.0 a decrease. As such, using the PMI data gives us a real-time look at global growth.
Questions are asked about real events and are not opinion based. Data are presented in the form of diffusion indices, where an index reading above 50.0 indicates an increase in the variable since the previous month and below 50.0 a decrease. As such, using the PMI data gives us a real-time look at global growth.
- readings > 50 indicate economic expansion
- readings < 50 indicate economic contraction.
Latest Key Findings:
- Global Composite Output Index rose to 52.3 (52.1 the previous month) and remains in expansion. It remains below the long term average Global PMI measure of 53.2.
- Global Manufacturing advanced to 50.6 (50.3 the previous month) and remains in modest expansion.
- Global Services rose to 52.4 (52.3 the previous month) and remains in modest expansion.
Global PMI Commentary
Below is our PMI monitor for selected regions/countries.
- numerical values > 50 (GREEN) indicate economic expansion in progress.
- numerical values < 50 (RED) indicating economic contraction in progress.
- trend box GREEN indicates improvement over the past month with RED indicating a decline over the previous month.
The latest data points to a strengthening of global growth from the late 2023 lows. The Global Composite Index remains in expansion (reading above 50)
World Bank Global Monthly Outlook
(March 2024)
(March 2024)
U.S. Economic Growth & Inflation
Year-over-Year GDP growth
The US economy expanded 3.1% year-on-year in the fourth quarter of 2023, the strongest rise in about two years, following a 2.9% rise in Q3. GDP Annual Growth Rate in the United States averaged 3.15 percent from 1948 until 2023, reaching an all time high of 13.40 percent in the fourth quarter of 1950 and a record low of -7.50 percent in the second quarter of 2020.
Quarter-over-Quarter GDP growth
The US economy expanded an annualized 3.4% in Q4 2023, slightly above the 3.2% previously reported, supported by consumer spending and non-residential business investments, according to the third estimate from the BEA. Consumer spending was revised higher (3.3% vs 3% in the second estimate), led by services (3.4% vs 2.8%) while goods rose less (3% vs 3.2%). Also, non-residential investment was revised higher (3.7% vs 2.4%), due to intellectual property products (4.3% vs 3.3%, structures (10.9% vs 7.5%) and investment in equipment (-1.1% vs -1.7%). Residential investment continued to grow although slightly less than expected (2.8% vs 2.9%). Looking further, government spending rose way more (4.6% vs 4.2%) but both exports (5.1% vs 6.4%) and imports (2.2% vs 2.7%) increased less than initially reported. Meanwhile, the drag from private inventories was much bigger than in the second estimate (subtracted 0.47 pp from the growth vs -0.27 pp).
Annualized Inflation
Annual inflation rate in the US accelerated for a second straight month to 3.5% in March 2024, the highest since September, compared to 3.2% in February and forecasts of 3.4%. Energy costs rose 2.1% (vs -1.9% in February), with gasoline increasing 1.3% (vs -3.9%) while utility gas service (-3.2% vs -8.8%) and fuel oil (-3.7% vs -5.4%) fell less. Also, inflation steadied for food (2.2%) and shelter (5.7%) but rose sharply for transportation (10.7% vs 9.9%) and apparel (0.4% vs 0%). On the other hand, prices declined for new vehicles (-0.1% vs 0.4%) and used cars and trucks (-2.2% vs -1.8%). Compared to the previous month, the CPI rose 0.4%, the same as in February but above forecasts of 0.3%. The index for shelter and gasoline contributed over half of the monthly increase. Meanwhile, annual core inflation was steady at 3.8%, the same as in the previous month, and above forecasts of 3.7%. The monthly rate was also steady at 0.4%, with markets expecting it would slow to 0.3%.
Eurozone Economic Growth & Inflation
Year-over-Year GDP growth
The Gross Domestic Product (GDP) In the Euro Area stagnated 0 percent in the fourth quarter of 2023 over the same quarter of the previous year. GDP Annual Growth Rate in Euro Area averaged 1.60 percent from 1995 until 2023, reaching an all time high of 14.90 percent in the second quarter of 2021 and a record low of -14.10 percent in the second quarter of 2020.
Quarter-over-Quarter GDP growth
The Euro Area economy stagnated in the fourth quarter of 2023, following a 0.1% contraction in the previous three-month period, as persistently high inflation, record borrowing costs, and weak external demand continued to exert downward pressure on growth. Net exports subtracted 0.3 percentage points from the GDP, with exports remaining flat (vs -1.2% in Q3) and imports increasing by 0.6% (vs -1.4%), while changes in inventories subtracted 0.1 percentage point. On the other hand, household consumption rose by a meager 0.1%, following a 0.3% increase in the previous quarter. On a brighter note, fixed investment advanced by 1.0% (vs 0.0% in Q3), and public spending expanded by 0.6% (vs 0.6% in Q3). Compared with the same quarter of the previous year, the Eurozone economy advanced by 0.1%, matching the pace of the previous period. Looking at the full year of 2023, the GDP grew by 0.4%, marking a sharp decline from a 3.4% expansion in 2022.
Annualized Inflation
The consumer price inflation rate in the Euro Area declined to 2.4% year-on-year in March 2024, matching November's 28-month low and falling short of market expectations of 2.6%, a preliminary estimate showed. The core rate, excluding volatile food and energy prices, also cooled to 2.9%, its lowest point since February 2022 and below forecasts of 3.0%. Energy prices saw a decline of 1.8% (vs -3.7% in February), while the pace of price rises moderated for food, alcohol & tobacco (2.7% vs 3.9%), and non-energy industrial goods (1.1% vs 1.6%). On the other hand, services inflation held steady at 4.0%. On a monthly basis, consumer prices increased by 0.8% in March, following a 0.6% rise in February.
Japan Economic Growth & Inflation
Year-over-Year GDP growth
The Gross Domestic Product (GDP) in Japan expanded 1.20 percent in the fourth quarter of 2023 over the same quarter of the previous year. GDP Annual Growth Rate in Japan averaged 1.75 percent from 1981 until 2023, reaching an all time high of 9.40 percent in the first quarter of 1988 and a record low of -9.70 percent in the second quarter of 2020.
Quarter-over-Quarter GDP growth
Japan's GDP grew by 0.1% qoq in Q4 of 2023, compared with flash data of a 0.1% fall and a 0.8% contraction in Q3. The economy narrowly escaped a recession as markets expected a 0.3% rise, helped by a strong upward revision of capital expenditure (2.0% vs the preliminary print and Q3 figure of a 0.1% fall, and market consensus of a 2.5% rise). Also, net trade contributed positively (0.2 percentage points, unchanged from the flash print), with exports (2.6% vs 0.9% in Q2) growing stronger than imports (1.7% vs 1.0%). Meanwhile, private consumption, which accounts for about 60% of the economy, shrank for the third straight quarter (-0.3% vs the initial reading of a 0.2% drop and after a 0.3% fall in Q3), due to elevated cost pressure and persistent headwinds at home. Also, government spending fell more than initially anticipated (-0.2% vs -0.1% in flash data, after a 0.3% rise in Q3), as did public investment (-0.8% vs -0.7% in the first estimate and after a 1.0% decrease in Q3).
Annualized Inflation
The annual inflation rate in Japan climbed to 2.8% in February 2024 from 2.2% in the prior month, accelerating for the first time in four months and reaching the highest since last November. The rise is mainly due to base effects, as energy subsidies introduced by the government in February 2023 are losing their effect. Prices of fuel, and light fell the least in 11 months (-3.0% vs -13.9%), due to electricity (-2.5% vs -21.0%) and gas (-9.4% vs -15.3%). Also, prices accelerated for culture & recreation (7.3% vs 6.8% in January) but inflation slowed for food (4.8% vs 5.7%), housing (0.6% vs 0.7%), transport (2.9% vs 3.0%), healthcare (1.8% vs 2.3%), clothes (2.6% vs 3.0%), furniture & household utensils (5.1% vs 6.5%), education (1.3% vs 1.4%), communication (1.4% vs 2.1%) and miscellaneous (1.1% vs 1.2%). The core inflation rate jumped to a four-month top of 2.8% from 2% in January, matching market forecasts while coming at or above the central bank’s 2% target for 23 straight months.
China Economic Growth & Inflation
Year-over-Year GDP growth
The Chinese economy expanded 5.2% yoy in Q4 of 2023, faster than a 4.9% growth in Q3 but less than market forecasts of 5.3%. Activity data for December showed that industrial production rose the most in almost two years, but retail sales increased the least in three months and the surveyed jobless rate edged up to a four-month high. For the full year, the economy also grew by 5.2%, exceeding the official target of around 5.0% and picking up from a 3.0% rise in 2022 amid various support measures from Beijing and a low base comparison from the prior year. Excluding the pandemic years through 2022, the 2023 GDP growth is the slowest pace of annual rise since 1990, underscoring the impact of a prolonged property crisis, persistently weak consumption, and global turmoil. For 2024, Beijing is set to announce the GDP growth target at an annual parliamentary meeting in early March.
Quarter-over-Quarter GDP growth
The Chinese economy grew by a seasonally adjusted 1.0% in Q4 of 2023, matching market expectations but moderating from an upwardly revised 1.5% increase in Q3. This was the sixth consecutive period of quarterly expansion, with weakness in the property sector continuing to drag on the broader economic recovery. At the same time, the government seemed reluctant to deliver a major stimulus package due to attempts to control mounting government debts. Beijing in October outlined a massive CNY 1 trillion bond issuance to spur infrastructure spending. However, any more debt issuances are expected to be limited. Meanwhile, the PBoC has carried out liquidity injections to support the economy, but economists believe it has limited space to loosen monetary conditions further. “We must effectively enhance economic vitality, prevent and mitigate risks, improve social expectations, consolidate and boost the sound momentum of economic recovery and growth," the statistics bureau said in a statement.
Annualized Inflation
China's consumer prices edged up 0.1% yoy in March 2024, compared with market forecasts of 0.4% and after a 0.7% rise in the previous month. The notable slowdown came as the effects of the Lunar New Year waned, with non-food inflation easing (0.7% vs 1.1% in February) as the cost of education moderated sharply (1.8% vs 3.9%) while transport prices fell further (-1.3% vs -0.4%). Simultaneously, inflation was unchanged for clothing (at 1.6%), housing (at 0.2%), and health (at 1.5%). On the food side, prices fell much steeper (-2.7% vs -0.9%), as costs of pork and fresh vegetables turned lower following rises in February. The core consumer prices, deducting food and energy prices, increased by 0.6% yoy in March, slowing from the prior 1.2% which was the fastest rise since January 2022. Monthly, the CPI decreased 1.0%, the first fall in four months and a reversal from a 1.0% rise in February. It came worse than estimates of a 0.5% drop, pointing to the steepest monthly fall in 3 years.
Valuation Model
The Valuation model is currently YELLOW. Equity valuations are currently near the upper region of "fair value" relative to underlying current global economic fundamentals.
Technical Model
The Technical model is currently GREEN. Global equity markets have been in a trending advance since Oct 2023 following their Jul-Oct correction.
Sentiment Model
The Sentiment model is currently YELLOW. Overall sentiment has turned neutral (sentiment acts as an inverse shorter-term trading indicator).
Liquidity/Economic Stress Model
The Liquidity/Economic Stress model is currently GREEN. Steady and improving global economic growth continues to offset global central bank liquidity tightening.
World Bond Asset Class Return Monitor
We use the following U.S. exchange traded funds to monitor bond performance for the various bond asset classes:
Total Market Bond Basket:
- U.S. Total Bond Market (BND): (Red)
- International (ex-U.S.) Total Bond Market (BNDX): (Blue)
- U.S. Gov't Treasury Bonds (GOVT): (Orange)
- Foreign Developed Market Gov't Treasury Bonds (BWX): (Pink)
- U.S. Corporate Bonds (LQD): (Maroon)
- International Corporate Bonds (PICB): (Black)
- U.S. High Yield Bonds (JNK): (Purple)
- International High Yield Bonds (IHY): (Green)
- U.S. Gov't Inflation Protected Bonds (TIP): (Lime Green)
- International Gov't Inflation-Protected Bonds (WIP): (Cyan)
1 Year Rolling Bond Performance
- Over the past 12 months rolling period the top performing bond asset class has been US High Yield Bonds with Int'l Gov't Treasury Bonds the worst performing.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) have delivered mixed returns over the past year.
3 Month Rolling Bond Performance
- Over the past 3 month rolling period the top performing bond asset class has been US High Yield Bonds with Int'l Gov't Treasury Bonds lagging.
- U.S. Total Bond Market (RED) and International (ex-U.S.) Total Bond Market (BLUE) have delivered mixed returns over the past quarter (3 months).
1 Month Rolling Bond Performance
- Over the past 1 month rolling period the top performing bond asset class has been US High Yield Bonds with Int'l Gov't Treasury Bonds lagging.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) have delivered negative returns over the past month.
Past Week Bond Asset Class Performance
- Over the past week US Gov't Inflation-Protected Bonds were the top performing bond class.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) posted lower returns over the past week.
Commentary:
It has been shown in repeated studies over many years a balanced portfolio consisting of both equities and bonds (with percentage holdings in each adjusted according to personal risk tolerances) remains the best methodology in managing a long term retirement portfolio (due to the independent/low correlated function each takes when navigating though various market cycles and economic conditions).
It is best to think of bonds and equities as 2 independent brains each looking at the market from a different perspective:
As such, historically both serve a useful purpose in a balanced portfolio.
It is best to think of bonds and equities as 2 independent brains each looking at the market from a different perspective:
- Equities: Corporate profits focused.
- Bonds: Economic growth and Inflation focused.
As such, historically both serve a useful purpose in a balanced portfolio.
ETF Bond Proxies
Global aggregate bonds posted a loss of -0.63% over the past week. They have been rangebound since late 2023 within a narrow trading range. They closed the week below support and above the 52 week moving average.
The current bond bear market began 31 Dec 2020. Below is the performance of the 3 ETF's we use as "bond proxies" from that date to monitor global bond performance:
- BNDW: Vanguard Total World Bond market ETF (BLUE)
- BND: Vanguard Total U.S. Bond market ETF (GREEN)
- BNDX: Vanguard Total International (ex-U.S.) Bond market ETF (RED)
U.S. 10 year Treasury Yield
The most recent global bull market in bonds began in mid-1981 when the US Federal Reserve pushed interest rates to > 20% to combat inflation. Below is charts for the various US Treasury yields from their peak (bond prices move inverse to yields so falling treasury yields are bullish for bond prices).
U.S. treasury yields rose in a parabolic manner into Oct, 2023 before their recent decline. This past week yields closed above resistance @ 4.213% and remain above the 52 week moving average.
German 10 year Bund Yield
German 10 year treasury yields bottomed in early 2020 during the depths of the European Covid shutdowns. They rebounded in a parabolic manner into Oct, 2023 before their recent decline. This past week yields closed below resistance @ 2.437% and remain below the 52 week moving average.
Japanese 10 year Treasury Yield
Japan has been fighting deflation for decades and only recent unprecedented monetary policy by the BOJ appears to be having some effect upon deflation (and yields).
After bottoming at near -0.28% in mid-2016, yields have risen and were able to finally break above 0.15% in early 2022. They are currently employing yield curve control (YCC) to keep rates pegged below 1.0% (increased from 0.5% in Jul/2023). This past week yields closed above support @ 0.579% and remain above the 52 week moving average.
After bottoming at near -0.28% in mid-2016, yields have risen and were able to finally break above 0.15% in early 2022. They are currently employing yield curve control (YCC) to keep rates pegged below 1.0% (increased from 0.5% in Jul/2023). This past week yields closed above support @ 0.579% and remain above the 52 week moving average.
Currencies
Below is the 12/3/1 month and weekly rolling returns for the 6 currencies that make up the U.S. Dollar index. The U.S. Dollar index is composed of a weighted geometric mean of the dollar's value relative to the 6 currencies in the following list:
In addition, we also include the following for comparison purposes:
- Euro (EUR), 57.6% weight.
- Japanese yen (JPY) 13.6% weight.
- U.K. Pound sterling (GBP), 11.9% weight.
- Canadian dollar (CAD), 9.1% weight.
- Swedish krona (SEK), 4.2% weight.
- Swiss franc (CHF) 3.6% weight.
In addition, we also include the following for comparison purposes:
- The Australian Dollar (not a part of the USD Index) as it is a popular commodity currency.
- Gold (priced in USD) as it typically acts more like a currency void of fiat printing.
1 Year Rolling Currency Performance
- Over the past 12 months rolling period the top performing major currency has been Gold with the Japanese Yen the worst performing.
3 Month Rolling Currency Performance
- Over the past 3 month rolling period the top performing currency has been Gold with the Swiss Franc lagging.
1 Month Rolling Currency Performance
- Over the past 1 month rolling period the top performing currency has been Gold with the Swedish Krona lagging.
Past Week Currency Performance
- Over the past week the top performing major currency was the US Dollar Index with the Swedish Krona lagging.
U.S. Dollar: (Bullish Bias)
Commentary:
The USD was up +1.87% over the past week. It had been confined to a 7-month consolidation range before breaking lower in July but has returned back to the previous range.
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 102.95 / 106.43
Monthly: 101.03 / 106.43
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 102.95 / 106.43
Monthly: 101.03 / 106.43
US Dollar Index Daily charts
The 2 year daily chart (above) shows the steady up-trend starting from its May 2021 lows into Oct 2022. It experienced a sharp decline into Feb 2023 and has remained rangebound.
The 10 year daily chart (above) shows the price break below 103.29-103.61 which was daily support on pullbacks. Support is now 100.04-100.21.
Over the past week the USD closed above its short term trend 50 and 200 day moving averages.
(Short Term Bullish)
(Short Term Bullish)
US Dollar Index Weekly charts
The weekly chart shows the recent trading range since late 2023. Price is currently challenging the top end of the range.
Price closed the week above the intermediate term trend 20 and 65 week moving averages.
(Intermediate Term Bullish)
Price closed the week above the intermediate term trend 20 and 65 week moving averages.
(Intermediate Term Bullish)
A longer term 20 year look-back at the USD shows the 79.05-104.32 price (yellow) area has been a very significant bull/bear battle zone since 1986. Price this week closed marginally above this level.
US Dollar Index Monthly chart
For the month of April the U.S. Dollar index has gained +1.46%. Price remains confined to the rising price channel from the 2011 lows and remains confined to a 16 month consolidation zone between 101.03-106.49.
Price closed March above the long term trend 10 month moving average keeping the long term bias to Bullish until months end.
(Long Term Bullish)
Price closed March above the long term trend 10 month moving average keeping the long term bias to Bullish until months end.
(Long Term Bullish)
Euro (Bearish Bias)
The Euro was down -1.79% over the past week. It has remained largely range bound between 105-112 over the past year.
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 105.013/ 108.46
Monthly: 105.25 / 114.27
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 105.013/ 108.46
Monthly: 105.25 / 114.27
Euro Daily Charts
The Euro topped out in early 2018 @ 125.10 and had been on a steady decline until March 2020. It rose dramatically into the end of 2020 had remained range bound in 2021 until its recent breakdown.
On the 2nd daily chart price it can be seen how important the yellow band daily resistance zone @ 114.61-116.04 is going back to 2015. Other areas of daily support/resistance are seen at 108.24-108.66 and 103.90-105.69.
The Euro closed the week below the short term trend 50 and 200 day moving averages.
(Short Term Bearish)
On the 2nd daily chart price it can be seen how important the yellow band daily resistance zone @ 114.61-116.04 is going back to 2015. Other areas of daily support/resistance are seen at 108.24-108.66 and 103.90-105.69.
The Euro closed the week below the short term trend 50 and 200 day moving averages.
(Short Term Bearish)
Euro Weekly Chart
The Euro peaked in 2008 and achieved a bottom in 2022. It has been on a steady decline but recently broke above important resistance @ 104.51-104.96 (which now should act as support).
This past week the Euro closed the week below the intermediate trend 20 week + 65 week moving averages.
(Intermediate Term Bearish)
This past week the Euro closed the week below the intermediate trend 20 week + 65 week moving averages.
(Intermediate Term Bearish)
Euro Monthly
For the month of April the Euro has lost -1.34%. On a monthly closing basis it closed the month of March below the long term trend 10 month moving average keeping the long term outlook bearish until months end.
(Long Term Bearish)
(Long Term Bearish)
UK Pound (Bearish Bias)
U.K. Pound Daily Charts
U.K. Pound Weekly Charts
U.K. Pound Monthly Charts
The British Pound was down -1.42% over the past week. It continues to recover from lows last seen 37 years ago. Historically since 1987 the Pound has traded within a range of 1.40 to 2.00 with brief excursions above/below this range. The previous all-time low over the past 200 years was 1.0520 (daily low @ 1.0438) seen in the 1st quarter of 1985 which was revisited in September 2022 (close 1.0696 27 Sep 2022).
This past week the Pound closed the week below its short term trend daily 50 +200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. For the month of April it has lost -1.30% and closed the month of March above its long term 10 month moving average (which technically keeps the long term bullish until months end).
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bullish)
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 121.54 / 131.43
Monthly: 121.33 / 133.09
This past week the Pound closed the week below its short term trend daily 50 +200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. For the month of April it has lost -1.30% and closed the month of March above its long term 10 month moving average (which technically keeps the long term bullish until months end).
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bullish)
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 121.54 / 131.43
Monthly: 121.33 / 133.09
Australian Dollar (Bearish Bias)
Australian Dollar Daily Chart
Australian Dollar Weekly Charts
Australian Dollar Monthly Chart
The Australian Dollar lost -1.53% over the past week. It topped in Apr/2021 and has been on a steady downtrend to present.
For the month of April the Aussie dollar has lost -0.58%. It closed the week below the short term trend 50 + 200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. It closed the month of March below the long term trend 10 month moving average keeping the long term outlook bearish until months end.
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bearish)
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 61.99 / 69.11
Monthly: 63.58 / 70.17
For the month of April the Aussie dollar has lost -0.58%. It closed the week below the short term trend 50 + 200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. It closed the month of March below the long term trend 10 month moving average keeping the long term outlook bearish until months end.
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bearish)
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 61.99 / 69.11
Monthly: 63.58 / 70.17
Canadian Dollar (Bearish Bias)
Canadian Dollar Daily Chart
Canadian Dollar Weekly Chart
Canadian Dollar Monthly Chart
The Canadian dollar lost -1.36% over the past week and continues to recover off its Covid-lows of late March 2020 (it is largely tied to the price of commodities so the anticipated global recovery has benefited CAD).
The Loonie closed the week below the short term trend 50 + 200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. For the month of April the Loonie has lost -1.72%. It closed the month of March below the long term trend 10 month moving average keeping the long term bearish until months end.
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bearish)
Support / Resistance Levels (based upon respective time period closing price)
Weekly: 71.99 / 72.96
Monthly: 72.17 / 75.95
The Loonie closed the week below the short term trend 50 + 200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. For the month of April the Loonie has lost -1.72%. It closed the month of March below the long term trend 10 month moving average keeping the long term bearish until months end.
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bearish)
Support / Resistance Levels (based upon respective time period closing price)
Weekly: 71.99 / 72.96
Monthly: 72.17 / 75.95
Key Weekly Returns (week ending 12 April 2024):
Countries/Regions
World Equities ACWI (iShares MSCI ACWI Index Fund) North American Equities SPY (S&P 500 SPDRs) QQQ (PowerShares QQQ Trust) IWM (Russell 2000 iShares) EWC (Canada iShares) |
Characteristics
Global Equity Fund U.S. Large Cap S&P 500 Index U.S. NASDAQ 100 Fund U.S. Russell 2000 Small Cap Fund Canada |
Week % Change
-1.74% -1.46% -0.50% -2.82% -2.98% |
Non-North America Equities
VGK (Vanguard European VIPERs) EPP (iShares MSCI Pacific ex-Japan ) EWJ (Japan iShares) EEM (iShares MSCI Emerging Markets) ILF (Latin America 40 Index iShares) Bonds
BND (Vanguard Total U.S. Bond Market) BNDX (Vanguard International Bond ETF) TIP (iShares Barclays TIPS Bond Fund) PCY (PowerShares Emerging Markets Debt Portfolio) |
Europe/U.K Pacific ex-Japan (inc. Australia + NZ) Japan Emerging Markets Latin America US Total Bond (44% Gov't Tsy, 56%Corp) World Investment Grade Bonds ex-US Inflation Protected Gov't Bonds Emerging Market Sovereign Debt |
-2.53% -2.78% -1.16% -1.75% -2.19% -0.67% -0.10% -0.48% -1.77% |
Commodities
DBC (DB Commodities Tracking Index Fund) DBA (PowerShares DB Agriculture Fund) GLD (SPDR Gold Trust Shares) SLV (iShares Silver Trust) DBB (PowerShares Metals Fund) USO (United States Oil Fund) |
Commodity Basket Soft Commodity Basket Gold Bullion Silver Bullion Industrial Metals Light Crude Oil |
-0.13% +1.40% +0.81% +2.40% +2.26% -1.06% |
Currencies
UUP (PowerShares DB US Dollar Bullish Fund)
FXA (Currency Shares Australian Dollar Trust) FXB (Currency Shares British Pound Sterling Trust) FXC (Currency Shares Canadian Dollar Trust) FXE (Currency Shares Euro Trust) FXY (Currency Shares Japanese Yen Trust) |
U.S. Dollar
Australian Dollar U.K. Sterling Canadian Dollar Euro Japanese Yen |
+1.76%
-1.80% -1.42% -1.36% -1.79% -1.08% |
Important Charts to Watch
Commodity Basket Index
Commodities (as measured by the Reuters/Jefferies CRB index, a basket of 19 commodities) bottomed in April, 2020 and peaked in June, 2022. They were highly impacted by the Covid pandemic actions and have been attempting to stabilize near 8 year highs.
Resistance remains @ 298.17 with support @ 254.66. Commodity prices strong influence inflation so the recent consolidation near its peak is indicative of lingering global inflationary pressures post-Covid.
Resistance remains @ 298.17 with support @ 254.66. Commodity prices strong influence inflation so the recent consolidation near its peak is indicative of lingering global inflationary pressures post-Covid.
Equity Market Volatility
The Volatility Index (VIX) is a measure of expected price fluctuations of options on the S&P 500 index options over the next 30 days (technically the VIX is quoted in percentage points and represents the expected range of movement in the S&P 500 index over the next year, at a 68% confidence level i.e. one standard deviation of the normal probability curve). For example, if the VIX is 15, this represents an expected annualized change, with a 68% probability, of less than 15% up or down.
In general it can be said there are four VIX volatility regimes:
The VXV uses the same calculation as the VIX but looks forward 3 months. When the VIX is greater than the VXV ($VIX:$VXV ratio > 1.0) the volatility structure is termed to be in "contango". It indicates traders are much more concerned about short term volatility than they are about longer term volatility and when that ratio returns to "normal" (< 0.93) it is typically a good sign market stress is easing (and a good time to add to equity positions).
As of this weeks market close volatility closed below the "VIX Event End Line" area with the VIX below 20. The volatility structure is currently BULLISH for equities.
In general it can be said there are four VIX volatility regimes:
- < 20 is trending bullish for equities
- ≈ 20-25 is choppy bullish for equities
- ≈ 25-30 is choppy bearish for equities
- > 30 is trending bearish for equities
The VXV uses the same calculation as the VIX but looks forward 3 months. When the VIX is greater than the VXV ($VIX:$VXV ratio > 1.0) the volatility structure is termed to be in "contango". It indicates traders are much more concerned about short term volatility than they are about longer term volatility and when that ratio returns to "normal" (< 0.93) it is typically a good sign market stress is easing (and a good time to add to equity positions).
As of this weeks market close volatility closed below the "VIX Event End Line" area with the VIX below 20. The volatility structure is currently BULLISH for equities.
Global Banks
Up until recently US banks were thought to be quite stable. However, several recent failures have now brought US banks into focus. Below is a chart of the KBE (US Bank ETF) and KRE (US Regional Bank ETF). We are watching closely for further signs of stress following the recent declines.
Since the 2009 market bottom Europe has been the weakest major equity growth region. As such, we continue to monitor European financial stocks (represented below using the iShares MSCI European Financials ETF).
European financials bottomed in March, 2022 and have been very strong.
European financials bottomed in March, 2022 and have been very strong.
Chinese Equities
The Shanghai Composite index was higher over the past week and remains above support @ 2715-2820. It remains near 5-year lows.
Chinese growth remains key to both Emerging market performance as well as an indication of Developed markets demand. From its peak in mid-2015, the Shanghai index lost more than -50% to its recent lows. We would like to see significant strength return to China further indicating world economic growth has positively turned the corner.
Chinese growth remains key to both Emerging market performance as well as an indication of Developed markets demand. From its peak in mid-2015, the Shanghai index lost more than -50% to its recent lows. We would like to see significant strength return to China further indicating world economic growth has positively turned the corner.
PRECIOUS METALS
Precious metals (and their respective producers) are an area we recommend all investors consider having a small position within. Precious metals perform well during times when real (inflation adjusted) interest rates are falling and/or when the USD is weak. The following charts can be utilized to determine when the risk/reward is favorable.
Below is a ratio price chart of gold stocks (HUI; the "Gold Bugs" Index) to gold bullion going back to 1996 when the Gold Bugs Index first came into existence. As can be seen, whenever the HUI:GOLD ratio dips to below approximately 0.14 (the GREEN zone on the chart) has been a low-risk opportunity to acquire gold stocks.
Gold stocks remain in the "low-risk vs. high-reward" range and until recently remain near their cheapest valuations in 8 years. Historically purchases of gold equities when within the green-zone have been a very good long term buy-and-hold opportunities.
Gold stocks remain in the "low-risk vs. high-reward" range and until recently remain near their cheapest valuations in 8 years. Historically purchases of gold equities when within the green-zone have been a very good long term buy-and-hold opportunities.
Equally bullish is Silver (chart below) which remains at a price ratio relative to the price of gold (GREEN zone on the chart) which has historically been a low risk entry point over the past 40 years.
Silver remains cheap relative to gold.
To put the valuation into a longer term perspective, below is a chart of the Gold/Silver ratio (the opposite ratio to Silver/Gold) going back to 1687. Clearly it can be seen a gold:silver ratio > 80 has historically been an outlier over the past 100+ years (and greater than 100 is historic):
The current Gold:Silver ratio recently exceeded 120 for the 1st time in history and remains near the top end of 40 year highs. It can be seen each instance in the past 40 years where the ratio has crossed above 80 has resulted in very good long term gains in silver.
The move in Silver we have been anticipating appears to have begun but there remains plenty of room to allow the ratio to fall to the "sell" level near 45.
EVEN MORE BULLISH is the price of Platinum (chart below) which has exceeded the "buy zone" last seen in 1982! Platinum is 15-20 times rarer than gold and has rarely in history traded at a price below the price of gold (only 9.7% of the time going back to 1971). It is now the cheapest it has been GOING BACK TO AUGUST 1971 WHEN THE U.S. LEFT THE GOLD STANDARD on a relative basis:
- The current Platinum:Gold ratio remains below 0.85 (red line on the chart below).
- A Platinum/Gold ratio < 0.85 has only occurred 4.7% of the time back to 1971.
- Prior to recent lows, the lowest Platinum:Gold ratio since August 1971 (when the USD was removed from the gold standard) was hit on 20 Sept 1982 when it hit a ratio low of 0.689 (Platinum $300.40/Gold $436.00).
- If Platinum were to return to its most common ratio relative to Gold (1.0x-1.25x which has been common 35% of the time) it would imply a price rise of approximately 50-90% from recent levels.
Platinum now sits on a price support extending back to 2004 and, combined with its ratio relative to the price of gold, represents a compelling long term buy point.
The following charts and commentary (in italics; bold print is our emphasis) are sourced from Kitco from commentary sourced in Feb 2017 when the ratio was near 0.85 (Platinum has become even cheaper on a relative basis since the data was published):
Platinum to gold ratios show wide variance over the 46 year period ranging from highs above 2.5 before and soon after Nixon began taking the United States off the gold standard to periodic lows below 1.0:
Platinum to gold ratios show wide variance over the 46 year period ranging from highs above 2.5 before and soon after Nixon began taking the United States off the gold standard to periodic lows below 1.0:
Our data set covers 553 months beginning in January 1971. The distribution of ratios in both tabular and chart format follows:
Platinum/Gold Ratio: % of Months
Platinum/Gold Ratio: % of Months
- < 0.85: 4.7%
- .85-1.01: 5.0%
- 1.0-1.25: 34.7%
- 1.25-1.5: 19.3%
- 1.5-2.0: 15.4%
- 2.0-2.5: 8.9%
- > 2.5: 2.0%
From our data set and the distributions of monthly average platinum-gold ratios from January 1971 thru January 2017, I glean the following:
From a compendium of sources, the average crustal abundance of both metals is around 4 ppb. Based solely on this fact, platinum and gold should trade at about the same price.
And indeed, our compilation shows that for nearly 50% of the time since gold was decoupled from the world’s reserve currency and allowed to trade freely on exchanges, the price ratio has ranged from 0.85 to 1.25. That said, since January 1971, the average price of platinum has been $637/oz and gold has been $518/oz for an overall ratio of 1.23:1. Clearly there are other factors other than the nearly equal crustal abundances that account for this historic price relationship.
A variety of supply and demand factors cause platinum to trade at a premium to gold:
Fluctuations in the relative prices of platinum and gold are largely driven by:
Platinum functions both as a precious and industrial metal. It is usually tied to the price of gold in both short- and long-term trading patterns. In times of financial distress and economic turmoil, platinum tends to behave more like gold with widespread hoarding.
The platinum-gold ratio can be used to ascertain whether one metal is over- or undervalued with respect to the other. The current monthly average ratio below 0.85 is unusual and indicates that platinum is severely undervalued with respect to gold *
* The ratio recently hit 0.55 and remains near a record low.
- A ratio of less than 0.75 is a single outlier that occurred once during the second half of 1982 when overall ratios averaged 0.81.
- Ratios <0.85 are quite unusual at 4.7%. They occurred for two months in the first quarter of 1975, the aforementioned six months in 1982, in June-July of 1985, and for an ongoing run of 16 months that commenced in October 2015.
- Ratios from 0.85 to 1.0 constitute 15.0% of the record.
- Pt:Au from 1.0 to 1.25 is the most common range and comprises 34.7% of ratios since 1971.
- The ratios between 1.25 and 1.5 occur 19.3% of the time.
- Ratios from 1.5 to 2.0 make up 15.4% of the record.
- The 2.0-2.5 interval covers 8.9% of the months in our compendium.
- The 11 monthly outliers at >2.5 comprise 2.0% of the total record and have not occurred since 1971.
From a compendium of sources, the average crustal abundance of both metals is around 4 ppb. Based solely on this fact, platinum and gold should trade at about the same price.
And indeed, our compilation shows that for nearly 50% of the time since gold was decoupled from the world’s reserve currency and allowed to trade freely on exchanges, the price ratio has ranged from 0.85 to 1.25. That said, since January 1971, the average price of platinum has been $637/oz and gold has been $518/oz for an overall ratio of 1.23:1. Clearly there are other factors other than the nearly equal crustal abundances that account for this historic price relationship.
A variety of supply and demand factors cause platinum to trade at a premium to gold:
- Platinum is a much smaller market. Cumulative world production of platinum is estimated to be about 5% of gold (9400 tonnes versus 182,000 tonnes). From 1994-2014, 3700 tonnes of platinum were mined versus 52,600 tonnes of gold or about 7% (source: USGS).
- Platinum is largely an industrial metal. Catalytic converters, electronics, petroleum and chemical catalysts, medical technologies, and many minor uses constitute over 60% of its annual demand. Around 30% is used in jewelry and 10% for investment demand. Also, 30% of the annual platinum supply now comes from recycling, mostly from catalytic converters. Some demand is consumed and lost to the marketplace.
- Gold is overwhelmingly a precious metal; 90% is used in jewelry and investments and only 10% in industrial applications. An estimated 98% of all the gold ever mined in the world remains available and held in jewelry, by central banks, in private hoards, and as fabricated products (source: USGS).
- About 70% of yearly platinum mine supply comes from South Africa, a geopolitically risky country. Much new platinum is a by-product of nickel-copper mining and smelting; therefore, annual platinum production is dependent on the supply-demand fundamentals and prices of these primary metals.
Fluctuations in the relative prices of platinum and gold are largely driven by:
- the overall growth and health of the world’s economy and in the case of platinum, the automotive industry;
- labor, power, currency, and political issues in South Africa that cause major perturbations in the platinum supply;
- safe haven hoarding of gold and to a much lesser extent, platinum, in times of economic uncertainty and major geopolitical events; speculators moving in and out of paper markets of both metals (bullion exchanges, ETFs, and derivatives) and to a lesser extent, central bank trading of physical gold.
Platinum functions both as a precious and industrial metal. It is usually tied to the price of gold in both short- and long-term trading patterns. In times of financial distress and economic turmoil, platinum tends to behave more like gold with widespread hoarding.
The platinum-gold ratio can be used to ascertain whether one metal is over- or undervalued with respect to the other. The current monthly average ratio below 0.85 is unusual and indicates that platinum is severely undervalued with respect to gold *
* The ratio recently hit 0.55 and remains near a record low.
U.S. Equity Market Valuation
Crestmont Price/Earnings Ratio
(Source: Crestmont Research)
(Source: Crestmont Research)
A large part of the expected declines in bear markets hinges upon how "expensive" markets were when the bear market begins. In this measure, we have a long way to fall given the overvaluation at the market peak.
We illustrate the recent market overvaluation via 3 charts produced by Crestmont Research (as of 01 April 2024 with data from 1871-to-Present). While it is not necessary to understand exactly how the data is plotted, it is important for every investor to realize where current valuations stand relative to this 153 years of history.
In the following graphs note the following:
We illustrate the recent market overvaluation via 3 charts produced by Crestmont Research (as of 01 April 2024 with data from 1871-to-Present). While it is not necessary to understand exactly how the data is plotted, it is important for every investor to realize where current valuations stand relative to this 153 years of history.
In the following graphs note the following:
- the Crestmont Price/Earnings (P/E) ratio remains near the most expensive market valuation in U.S. stock market history (but well off its most recent peak) .
- when compared to inflation the current Crestmont P/E has now exceeded the upper extreme portion of the bubble zone defining the 1998-2000 bubble peak as shown on the 2nd chart.
- pay particular attention to chart #2 where it can be seen high equity valuations are historically supported by inflation in the 0-3% range. Inflation remains outside this corridor so markets remain vulnerable to a valuation pullback.
U.S. (NYSE) Margin Debt
(Source: Advisor Perspectives)
We continue to monitor with interest the current margin debt on US markets. For those who are unfamiliar, margin debt is the amount of "loans" taken out by market speculators to leverage up their equity positions. During normal bull markets margin debt will increase as the market continues to climb. This increased margin debt amplifies equity market prices. However, at some point speculators become nervous and begin to reduce their margin positions. This reduction in margin is like letting the air out of a balloon and deflates equity asset prices.
As can be seen on the below graphic, both the 2000 and 2007 market tops were signaled in advance by tops in margin debt (margin debt not inflation adjusted on this chart):
As can be seen on the below graphic, both the 2000 and 2007 market tops were signaled in advance by tops in margin debt (margin debt not inflation adjusted on this chart):
The following chart (source: D. Short) shows US equity margin debt adjusted for inflation. As can be seen, in both 2000 and 2007 inflation-adjusted margin debt peaked and then began to decline leading to the tops in the S&P 500 index. As such, margin debt rollovers acts as a good lead indicator of possible future market weakness.
A year-over-year contraction in margin debt tends to be negative for stocks as liquidity is removed from equity markets. Below is the latest YoY rate of change in margin debt (source: Yardini). Note in both the 2000 and 2007 bear markets margin debt bottomed below -40% (but the recent bottoming in margin debt is encouraging).
U.S. Equity market Valuation Models
(Source: D. Short)
Below is a graph representing 4 different long-term valuation measures plotted back to 1900 (123 years):
As of 01 April 2024 the average of these 4 measures places the U.S. stock market (S&P 500 index) as being 148% above its long term geometric mean. This remains near the highest valuation in the history of the stock market going back to 1900 (greater than 3 standard deviations above the geometric mean).
- The Crestmont Research P/E Ratio
- The cyclical P/E ratio using the trailing 10-year earnings as the divisor
- The Q Ratio, which is the total price of the market divided by its replacement cost
- The relationship of the S&P Composite price to a regression trendline
As of 01 April 2024 the average of these 4 measures places the U.S. stock market (S&P 500 index) as being 148% above its long term geometric mean. This remains near the highest valuation in the history of the stock market going back to 1900 (greater than 3 standard deviations above the geometric mean).
Another popular valuation metric is know as the "Buffett-Indicator". In an interview with Fortune magazine back in 2001 Warren Buffett remarked "it is probably the best single measure of where valuations stand at any given moment."
The indicator measures the price of Corporate Equities (Mkt Cap) to Gross Domestic Product (GDP) as a ratio going back to 1950. As can be seen below, the ratio of equity prices relative to last reported GDP has now moved well below its recent peak and is currently in the "overvalued" zone (> 33.6% above the detrended regression line).
7-Year Asset Class Real Return Forecast
(Source: GMO LLC)
Each month GMO (Grantham, Mayo, Van Otterloo & Co.) publishes a forward forecast for expected annual real rates of return (i.e. inflation adjusted) for a number of different asset classes with a 7 year forward outlook. They have historically had a very good track record (0.97 correlation) of estimating forward 7 year asset class returns based primarily upon current valuations combined with mean reversion. Charts are published following analysis of the previous months data.
We have followed GMO's methodology with interest for many years. In our experience we have found them to be conservative over the shorter term with a tenancy to make calls too early. HOWEVER, similar to Dr. John Hussman of Hussman Funds, they also tend to be right over the longer term. As such, we use their outlook as part of the valuation model within the ECAM 5 Factor model.
Above is their current forecast of expected real returns (after inflation) for the next 7 years broken down by asset class. It is clear based upon current market valuations GMO forecasts well below average annual investment returns in all asset classes with a 7 year forward time horizon (the dotted line is the historical real return of U.S. equities of +6.5% per year). This is important for those who may be soon retiring and expecting "average" returns on their equity and bond investments over the next 7 years. Current high market valuations make it a certainty forward returns over the next 7-10 years will be well below historical averages.
We have followed GMO's methodology with interest for many years. In our experience we have found them to be conservative over the shorter term with a tenancy to make calls too early. HOWEVER, similar to Dr. John Hussman of Hussman Funds, they also tend to be right over the longer term. As such, we use their outlook as part of the valuation model within the ECAM 5 Factor model.
Above is their current forecast of expected real returns (after inflation) for the next 7 years broken down by asset class. It is clear based upon current market valuations GMO forecasts well below average annual investment returns in all asset classes with a 7 year forward time horizon (the dotted line is the historical real return of U.S. equities of +6.5% per year). This is important for those who may be soon retiring and expecting "average" returns on their equity and bond investments over the next 7 years. Current high market valuations make it a certainty forward returns over the next 7-10 years will be well below historical averages.
Global Asset Class 10-year Expected Nominal Return Forecast
(data as of 31 August 2023)
(Source: Research Affiliates)
(data as of 31 August 2023)
(Source: Research Affiliates)
Below is the projected 10 year nominal (non-inflation adjusted) returns for the majority of global asset classes.
Data continues to point to Emerging Market and EAFE (Europe, Africa and Far East) equities as providing the greatest equity returns over the next 10 years.
Data continues to point to Emerging Market and EAFE (Europe, Africa and Far East) equities as providing the greatest equity returns over the next 10 years.
Cycle Commentary
Below is a 20 year chart of the seasonal monthly performance of the Dow Jones Global Index. The number at the top of the column is the percentage of time the month had a positive return and at the bottom is the average percentage gain/loss for the month.
Dow Jones Global Index Market ($DJW)
As can be seen, over the past 20 years (2003-2022) the period October-April yearly offers the highest potential global equity market returns (cumulative +6.7% average return) while the period May-September offers little in total return relative to risk (+0.7% cumulative average return). The month of April remains the strongest month with an 80% success rate and an average +2.5% return.
In the interest of moving more towards more recent market action broken down by region, below is the seasonal returns for our each of our selected ETF benchmarks going back to the start of the bull market in 2009:
Region
|
October-April
|
May-September
|
Global Equities (VT)
U.S. Equities (VTI) European Equities (VGK) Asia Pacific Equities (VPL) Emerging Market Equities (VWO) |
+8.9%
+10.9% +7.6% +6.0% +8.6% |
+1.8%
+3.0% +0.5% +0.9% -0.5% |
S&P 500 Seasonality (historical 50 year look-back annual seasonality)
"Turning to the months ahead, the performance for January and February is rather lacklustre compared to the months that bookend this start of year period. The S&P 500 Index has gained an average of 0.8% and 0.2%, respectively in the first two months of the year, based on the past 50 periods. These months are easily the weakest of the best six month trend for stocks. The large-cap benchmark has closed positive just over half of the time (56%) in January and February, making this winter lull little better than a flip of a coin in terms of the frequency of success.. Returns for January have ranged from a loss of 8.6% in 2009 to a gain of 13.2% in 1987. Performance tends to gyrate in the middle of January with the majority of the strength achieved in the first few days and last few days of the period".
Ned Davis Research 2023 Composite Model
The following is the composite directional model forecast for the S&P 500 index for 2022 based upon the following parameters (each equal weighted within the composite model) for data from 1928-2022:
- 10-year Decennial Market Cycle
- 4-year Presidential Market Cycle
- 1-year Annual Seasonal Market Cycle
The levels are not as important as the general trends as indicated by the Composite model.
The 2023 composite model indicates the following historical "glidepath" based upon cycles from 1928-2022:
- a consistent trending market advance into mid-July
- a choppy pullback to lows in late-November
- a strong rise into year-end.
U.S. 4-Year Presidential Election Cycle
* 2023 is Year-3 ("Pre-Election") of the 4-year cycle
As can be seen on the chart above, historically since 1900 the 3rd year (pre-election year ) of the 4 year Presidential Cycle tends to provide the best returns of the 4-year cycle.
While we do not make investment decisions strictly based upon cycle analysis, we are cognizant of the historical nature of these cycles as they tend to define the political environment's influence upon stock market returns.
Of the 4-year cycle, the strongest quarters are the 4th quarter of Year 2 (Oct-Dec 2022) and the 1st 2 quarters of Year-3 (Jan-Jun 2023).
While we do not make investment decisions strictly based upon cycle analysis, we are cognizant of the historical nature of these cycles as they tend to define the political environment's influence upon stock market returns.
Of the 4-year cycle, the strongest quarters are the 4th quarter of Year 2 (Oct-Dec 2022) and the 1st 2 quarters of Year-3 (Jan-Jun 2023).
Presidential Cycle S&P 500 returns (inc. dividends):
1988-Year 4: +12.40%
1989-Year1: +27.25% 1990-Year 2: -6.56% 1991-Year 3: +26.31% 1992-Year 4: +4.46% 1993-Year 1: +7.06% 1994-Year 2: -1.54% 1995-Year 3: +34.11% 1996-Year 4: +20.26% 1997-Year 1: +31.01% 1998-Year 2: +26.67% 1999-Year 3: +19.53% 2000-Year 4: -10.14% |
2001-Year 1: -13.04%
2002-Year 2: -23.37% 2003-Year 3: +26.38% 2004-Year 4: +8.99% 2005-Year 1: +3.00% 2006-Year 2: +13.62% 2007-Year 3: +3.53% 2008-Year 4: -38.49% 2009-Year 1: +23.45% 2010-Year 2: +12.78% 2011-Year 3: +0.00% 2012-Year 4: +13.41% 2013-Year 1: +29.60% |
2014-Year 2: +11.39%
2015-Year 3: -0.73% 2016-Year 4: +11.96% 2017-Year 1: +21.83% 2018-Year 2: -4.38% 2019-Year 3: +31.49% 2020-Year 4: +16.26% 2021-Year 1: +26.89% 2022-Year 2: -19.44% 2023-Year 3: TBD |
U.S. S&P 500 Index Bear Markets
(source: Ben Carlson, CFA)
(source: Ben Carlson, CFA)
Recessionary Bear Markets (1928-2022):
Non-Recessionary Bear Markets (1928-2022):
Recessionary vs Non-Recessionary Bear Market Returns (1928-2022):