Sentry Page Protection
Market/Model Commentary
Currently the active model portfolio as defined by our 5-factor model is:
- Please click on the above magenta link to review the suggested allocations if required.
- The Risk-Reduction Level 1 model was initiated 18 March 2022.
ECAM 5-Factor Composite Model
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ECONOMIC FACTOR SUB-MODEL
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TECHNICAL FACTOR SUB-MODEL
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VALUATION FACTOR SUB-MODEL
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SENTIMENT FACTOR SUB-MODEL
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LIQUIDITY (Stress) FACTOR SUB-MODEL
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"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
(08 December 2023)
Global equities were lower this past week with a percentage return (as measured by the Dow Jones Global Index) of -0.07%. This week price closed above the 40 week moving average and closed above the previous price support @ 492-505.
Technical Analysis Summary (Dow Jones Global Index)
Click to set custom HTML
Dow Jones Global Index Historical Monthly Returns
The month of November closed with a gain of +9.0%. We are now in December which has historically been a very positive month within the seasonal cycle:
- +34.1% cumulative percentage return over the past 23 years.
- 69.6% win percentage.
- greatest gain +7.4% (2010)
- greatest loss -7.2% (2018)
Weekly Global Macro Review
U.S. Equities
A late rally helped the major US indexes end flat to modestly higher for the week. The small-cap Russell 2000 Index outperformed the S&P 500 Index for the third time in the past four weeks, helping narrow its significant underperformance for the year-to-date period. Growth stocks built modestly on their lead over value shares, however. Within the S&P 500, energy stocks lagged as domestic oil prices fell below USD 70 per barrel for the first time since June.
A late rally helped the major US indexes end flat to modestly higher for the week. The small-cap Russell 2000 Index outperformed the S&P 500 Index for the third time in the past four weeks, helping narrow its significant underperformance for the year-to-date period. Growth stocks built modestly on their lead over value shares, however. Within the S&P 500, energy stocks lagged as domestic oil prices fell below USD 70 per barrel for the first time since June.
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S&P 500:
DJIA: NASDAQ 100: S&P 400 Mid-cap: Russell 2000 Small Cap: |
+0.2%
+0.0% +0.5% +0.2% +1.0% |
Continuing enthusiasm over the potential of generative artificial intelligence (AI) appeared to be one factor in boosting the growth indexes and the technology-heavy Nasdaq Composite. Shares of Google parent Alphabet rose over 5% on Thursday after the company revealed its new AI model, Gemini, which can process text, code, audio, images, and video and can be incorporated into mobile applications. Meanwhile, Advanced Micro Devices rose nearly 10% on the same day after it announced the launch of a new generation of AI chips. Earlier in the week, Apple once again eclipsed USD 3 trillion in market capitalization and moved back near its summer all-time highs.
The week’s busy economic calendar seemed to be another major driver of sentiment. Friday’s closely watched nonfarm payrolls report surprised modestly on the upside, with employers adding 199,000 jobs in November versus consensus expectations of around 180,000. The unemployment rate also surprised by falling back to 3.7% from a two-year high of 3.9% in October. Average hourly earnings rose 0.4%, above expectations, but the year-over-year increase remained at a consensus 4.0%.
The bigger surprise—and the bigger market reaction—seemed to be the University of Michigan’s preliminary gauge of consumer sentiment in December, which jumped to its highest level since August on calming inflation fears. Survey respondents expected prices to increase by 3.1% in the coming year, down sharply from 4.5% in November and the lowest rate since March 2021. Gauges of consumer expectations and their assessment of current economic conditions also rose considerably.
The rest of the week’s economic data were mixed. On Tuesday, data from both S&P Global and the Institute for Supply Management showed a modest pickup in services sector activity in November, but the Labor Department’s count of October job openings fell much more than expected to 8.73 million, the lowest level since March 2021. October factory orders, which were reported Monday, also fell more than expected.
US Bonds
The data on job openings, in particular, seemed to drive a continued decrease in long-term interest rates over much of the week, with the yield on the benchmark 10-year U.S. Treasury note hitting an intraday low of 4.10% on Thursday. Yields rebounded in the wake of the payrolls report, however.
The investment-grade corporate bond market weakened relative to Treasuries among softer tones in the beginning of the week. Issuance came in slightly above expectations, and about half of the issues were oversubscribed. High yield bond investors were mainly focused on the very active primary market, as companies looked to refinance debt or issue new deals before year-end.
The week’s busy economic calendar seemed to be another major driver of sentiment. Friday’s closely watched nonfarm payrolls report surprised modestly on the upside, with employers adding 199,000 jobs in November versus consensus expectations of around 180,000. The unemployment rate also surprised by falling back to 3.7% from a two-year high of 3.9% in October. Average hourly earnings rose 0.4%, above expectations, but the year-over-year increase remained at a consensus 4.0%.
The bigger surprise—and the bigger market reaction—seemed to be the University of Michigan’s preliminary gauge of consumer sentiment in December, which jumped to its highest level since August on calming inflation fears. Survey respondents expected prices to increase by 3.1% in the coming year, down sharply from 4.5% in November and the lowest rate since March 2021. Gauges of consumer expectations and their assessment of current economic conditions also rose considerably.
The rest of the week’s economic data were mixed. On Tuesday, data from both S&P Global and the Institute for Supply Management showed a modest pickup in services sector activity in November, but the Labor Department’s count of October job openings fell much more than expected to 8.73 million, the lowest level since March 2021. October factory orders, which were reported Monday, also fell more than expected.
US Bonds
The data on job openings, in particular, seemed to drive a continued decrease in long-term interest rates over much of the week, with the yield on the benchmark 10-year U.S. Treasury note hitting an intraday low of 4.10% on Thursday. Yields rebounded in the wake of the payrolls report, however.
The investment-grade corporate bond market weakened relative to Treasuries among softer tones in the beginning of the week. Issuance came in slightly above expectations, and about half of the issues were oversubscribed. High yield bond investors were mainly focused on the very active primary market, as companies looked to refinance debt or issue new deals before year-end.
Europe/UK Equities
In local currency terms, the pan-European STOXX Europe 600 Index advanced for a fourth consecutive week, ending +1.3% higher. Stocks appeared to receive a lift from expectations that central banks could cut interest rate next year due to slowing inflation and signs that European economies have been faltering.
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German DAX:
French CAC: Italian MIB: Spanish IBEX: U.K. FTSE 100: |
+2.2%
+2.5% +1.6% +0.8% +0.3% |
ECB Executive Board member Isabel Schnabel signaled a shift to a dovish stance in an interview with Reuters, saying, “The most recent inflation number has made a further rate increase rather unlikely.” Inflation has slowed sharply for three months in a row to just above the ECB’s 2% target. Schnabel, the first policy hawk to change her view, also warned—as have other policymakers—that the fight against inflation is not over and that prices may rise again as budget subsidies expire and high energy prices fall out of annual comparisons. Meanwhile, Governing Council member Francois Villeroy de Galhau told a French newspaper that disinflation was happening more quickly than previously thought. “This is why, barring any shocks, there will not be any new rise in rates. The question of a rate cut could arise in 2024, but not right now,” he said.
Industrial output fell for a fifth consecutive month in October, sliding 0.4% sequentially, which was more of a contraction than the 0.2% increase called for in one consensus estimate. Factory orders unexpectedly slumped, dropping 3.7%. Meanwhile, the jobless rate rose to 5.9% in November, the highest level since May 2021.
Activity in the UK’s construction sector fell sharply for a third month in a row in November due to a continued slump in homebuilding, according to a Purchasing Managers’ Index compiled by S&P Global and the Chartered Institute of Purchasing and Supply.
Euro/UK Bonds
European government bond yields broadly ended lower as comments by some European Central Bank (ECB) policymakers fueled hopes that rate reductions could come sometime in the first half of 2024. The yield on the benchmark 10-year German bond slid toward its lowest levels so far this year. Italian government bond yields also declined. In the UK, the 10-year government bond yield fell to below 4% for the first time since mid-May on expectations that the Bank of England could start cutting borrowing costs by mid-2024.
Industrial output fell for a fifth consecutive month in October, sliding 0.4% sequentially, which was more of a contraction than the 0.2% increase called for in one consensus estimate. Factory orders unexpectedly slumped, dropping 3.7%. Meanwhile, the jobless rate rose to 5.9% in November, the highest level since May 2021.
Activity in the UK’s construction sector fell sharply for a third month in a row in November due to a continued slump in homebuilding, according to a Purchasing Managers’ Index compiled by S&P Global and the Chartered Institute of Purchasing and Supply.
Euro/UK Bonds
European government bond yields broadly ended lower as comments by some European Central Bank (ECB) policymakers fueled hopes that rate reductions could come sometime in the first half of 2024. The yield on the benchmark 10-year German bond slid toward its lowest levels so far this year. Italian government bond yields also declined. In the UK, the 10-year government bond yield fell to below 4% for the first time since mid-May on expectations that the Bank of England could start cutting borrowing costs by mid-2024.
Japan
Japan’s stock markets lost ground over the week, with the Nikkei 225 Index falling -3.4% and the broader TOPIX Index down -2.4%. Comments by Bank of Japan (BoJ) officials stoked speculation that the central bank may abandon its policy of negative interest rates earlier than anticipated, weighing on riskier assets. Equities came under further pressure as data showed that Japan’s economy contracted by more than initially estimated in the third quarter of the year.
Comments by BoJ officials during the week were taken by some investors as suggesting that the central bank could be preparing for an earlier-than-expected shift in its ultra-accommodative monetary policy—and that the removal of its negative interest rate policy could come soon after any potential lifting of the BoJ’s yield curve control policy.
One of the BoJ’s two deputy governors, Ryozo Himino, speaking hypothetically, said that Japan’s economy could benefit from an exit from ultra-loose monetary policy, as rising wages and prices would be favorable for households and firms. He nevertheless stressed that the BoJ should tread carefully.
Separately, BoJ Governor Kazuo Ueda stressed that the handling of monetary policy would get tougher in the new year, anticipating an even more challenging situation. He reiterated the importance of closely watching if a virtuous cycle of rising wages and prices becomes stronger.
Japan’s gross domestic product contracted by a bigger-than-estimated 2.9% on an annualized basis in the three months ended September, compared with an initial reading showing the economy had shrunk 2.1%. The downward revision was due to a larger drag from private inventories as well as slightly lower private consumption.
China
Chinese equities fell after a credit downgrade on China’s sovereign debt by Moody’s underscored worries about its economic outlook. The Shanghai Composite Index declined -2.0%, while the blue chip CSI 300 gave up -2.4% after falling midweek to its lowest level in nearly five years. In Hong Kong, the benchmark Hang Seng Index fell -3.0%.
Moody’s cut its outlook for China’s government bonds to "negative" from "stable" on Tuesday, saying that the country’s debt-laden local governments and state firms posed downside risks to the economy. The ratings cut from the U.S. credit agency was the latest setback for financial markets in China, which is grappling with a years-long property market downturn and flagging consumer and business confidence. In response, Beijing issued a flurry of pro-growth measures this year to shore up demand, although analysts say the measures have been insufficient to revive the economy.
Bearish sentiment about China’s longer-term outlook appeared to lead investors to look past the private Caixin/S&P Global survey of services activity, which rose to an above-forecast 51.5 in November from October’s 50.4. The gauge remained above the 50 threshold, indicating expansion for the 11th straight month and recorded its highest increase since August. The reading contrasted with the prior week’s official nonmanufacturing Purchasing Managers’ Index (PMI), which contracted for the first time in 12 months.
On the trade front, overseas exports rose an above-consensus 0.5% in November from a year earlier, reversing the 6.4% decline in October and marking the first increase in six months. However, imports unexpectedly fell by 0.6% in November, down from the 3% growth in October. The results were disappointing given the low base effect of China’s pandemic lockdowns in the prior-year period, which significantly weighed on activity. Overall trade surplus rose to USD 68.39 billion, up from October’s USD 56.5 billion.
Weekly Performance
U.S. Indices
Dow flat at 36,248. S&P 500 +0.2% to 4,604. Nasdaq +0.7% to 14,404. Russell 2000 +1% to 1,881. CBOE Volatility Index -2.2% to 12.35.
S&P 500 Sectors
Consumer Staples -1.2%. Utilities -0.3%. Financials -0.1%. Telecom +1.4%. Healthcare +0.2%. Industrials +0.2%. Information Technology +0.7%. Materials -1.7%. Energy -3.3%. Consumer Discretionary +1.1%. Real Estate -0.4%.
World Indices
London +0.3% to 7,554. France +2.5% to 7,527. Germany +2.2% to 16,759. Japan -3.4% to 32,308. China -2.1% to 2,970. Hong Kong -3% to 16,325. India +3.5% to 69,826.
Commodities and Bonds
Crude Oil WTI -3.8% to $71.26/bbl. Gold -2.4% to $2,020.8/oz. Natural Gas -9.3% to 2.552. Ten-Year Bond Yield -0.2 bps to 4.229.
Forex and Cryptos
EUR/USD -1.08%. USD/JPY -1.27%. GBP/USD -1.18%. Bitcoin +12.2%. Litecoin +9.2%. Ethereum +9.4%. XRP +10.7%.
Dow flat at 36,248. S&P 500 +0.2% to 4,604. Nasdaq +0.7% to 14,404. Russell 2000 +1% to 1,881. CBOE Volatility Index -2.2% to 12.35.
S&P 500 Sectors
Consumer Staples -1.2%. Utilities -0.3%. Financials -0.1%. Telecom +1.4%. Healthcare +0.2%. Industrials +0.2%. Information Technology +0.7%. Materials -1.7%. Energy -3.3%. Consumer Discretionary +1.1%. Real Estate -0.4%.
World Indices
London +0.3% to 7,554. France +2.5% to 7,527. Germany +2.2% to 16,759. Japan -3.4% to 32,308. China -2.1% to 2,970. Hong Kong -3% to 16,325. India +3.5% to 69,826.
Commodities and Bonds
Crude Oil WTI -3.8% to $71.26/bbl. Gold -2.4% to $2,020.8/oz. Natural Gas -9.3% to 2.552. Ten-Year Bond Yield -0.2 bps to 4.229.
Forex and Cryptos
EUR/USD -1.08%. USD/JPY -1.27%. GBP/USD -1.18%. Bitcoin +12.2%. Litecoin +9.2%. Ethereum +9.4%. XRP +10.7%.
WEEKLY ASSET CLASS MONITOR
(week ending 08 December 2023)
(week ending 08 December 2023)
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Asset Class
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Region
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ETF Ticker
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Weekly
Return |
2023 Return
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Equities
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World
U.S. Europe Asia Pacific Emerging Market |
VT
VTI VGK VPL VWO |
-0.07%
+0.30% +0.27% -0.78% -1.45% |
+16.96%
+21.08% +15.43% +9.58% +4.64% |
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Bonds
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U.S. Bonds
International Bonds Global Bonds |
BND
BNDX BNDW |
+0.01%
+0.36% +0.19% |
+2.87%
+6.41% +4.55% |
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Real Estate Equities
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Global Real Estate Equities
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REET
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+0.26%
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+3.36%
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Precious Metals Equities
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Global Gold Miners
Global Junior Gold Miners |
RING
GDXJ |
-6.14%
-7.61% |
+6.29%
+2.22% |
GLOBAL EQUITY MARKET MONITOR
The past 3 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. Key support levels for all regions remains the Feb, 2020 pre-covid closing highs (blue solid line on the below charts).
The strongest regional area has been the US but all regions remain below late 2021 peaks.
For most of 2021 they remained largely in a "holding pattern" digesting their gains but declined considerably throughout 2022 before bottoming in October. Key support levels for all regions remains the Feb, 2020 pre-covid closing highs (blue solid line on the below charts).
The strongest regional area has been the US but all regions remain below late 2021 peaks.
GLOBAL RECESSION PROBABILITY MODEL
(source: Ned Davis Research)
(source: Ned Davis Research)
Below we show the latest Ned Davis Research Global Recession Probability model which measures a composite of leading indicators across 35 countries (weighing a number of economic indicators such as money supply, yield curve, building permits, consumer and business sentiment, share prices, and manufacturing production). The model uses a logistic regression method incorporating both the overall composite of leading indicators level and trend data of all 35 countries to predict the likelihood of a global recession. A score above 70 indicates high recession risks while a score below 30 means low risks.
Global recession risks have dropped substantially from their late-2022 peak and are currently in the "low risk" range.
Global recession risks have dropped substantially from their late-2022 peak and are currently in the "low risk" range.
Asset Class Return Monitor
(for week ending 08 December 2023)
(for week ending 08 December 2023)
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)
- Vanguard FTSE Asia Pacific ETF (VPL): (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 -0.07%.
- US markets were the top performing equity region this past week with Emerging markets lagging.
- U.S. bonds (Black) and International bonds (Green) were higher on the week.
- Commodities were lower on the week with the U.S. Dollar index up +0.76%.
Year-to-Date (2023) Asset Class returns
- In 2023 global equities (as measured by the Vanguard Total World Stock ETF shown in CYAN) have gained +16.96%.
- US market equities are the top performing equity region year-to-date with Emerging markets lagging.
- Bonds have had mixed returns thus far in 2023 with U.S. bonds (Black) under-performing International Bonds (Green).
- The US Dollar index has gained +0.69% 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 towards 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 Pacific ex-Japan Equity: iShares MSCI Asia Pacific 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 most monitored regions.
- The strongest equity regions over the past 12 month have been Japan/US 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 +14.08% (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 European markets with Asia Pacific ex-Japan markets the weakest.
- Positive equity returns have been evident over the past quarter (3 months) in most monitored regions.
1 Month Rolling Regional Equity Performance
- Over the past 1 month rolling period the strongest performing world equity region has been European markets with Asia Pacific ex-Japan markets the weakest.
- Higher equity returns have been achieved over the past month for monitored regions.
Past Week Regional Equity Performance
- Over the past week the major global equities were mixed with US 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 -0.07%. As can be seen on the chart above, price closed above the 52 week moving average (green line) and above the previous support zone @ 492-511.
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 peaked in Nov 2021 and declined through to Oct 2022. Price closed Apr 2023 above the range for the 1st time since Apr, 2022.
For the month of December ACWI has gained +0.70%. It closed the month of November above the 12 month simple moving average (blue moving average on the chart above) switching the long term trend BULLISH until month end.
For the month of December ACWI has gained +0.70%. It closed the month of November above the 12 month simple moving average (blue moving average on the chart above) switching the long term trend BULLISH until month end.
ACWI Weekly Chart
This past week ACWI lost -0.04%. It had remained rangebound within a wide 16% trading range (red box on the above chart) since Apr/22 but broke out of this range in Apr/23. This past week it remained back above the range.
Price closed above the 40 week simple moving average (shown in GREEN) and this week closed above support @ 90.37-91.01.
Price closed above the 40 week simple moving average (shown in GREEN) and this week closed above support @ 90.37-91.01.
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 STRENGTHENING for world equities:
- ACWI Weekly Quadrant: "IMPROVING" Quadrant
- 24 Country Net Score: POSITIVE
- ACWI price Relative Strength (horizontal axis): NEGATIVE
- 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 recent range. The 3-month correlation between crude oil and global equities is negative.
Gold
Gold was lower over the past week and closed below support @ 2028. The 3-month correlation between gold and global equities is positive.
Commodities
Commodities were lower over the past week and have moved back into their recent range. The 3-month correlation between commodities and global equities is negative.
U.S. 30 Year Treasury Bond
U.S. 30 year bond prices were higher over the past week. The 3-month correlation between US government bonds and global equities is positive.
Current 5-Factor Model Indications
The combined 5-Factor quantitative model is currently YELLOW (neutral). This indicates an elevated level of risk at present. The 5-Factor model currently has the following sub-model readings:
Economic Model
The Economic model is currently YELLOW. 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:
Current Data:
Forward Forecast Data:
- OECD Composite Leading Indicators (CLI)
- BlackRock Macro GPS Growth/Inflation forecast monitor
Current Data:
- J.P. Morgan Global Purchasing Managers (PMI) Index
- World Bank Monthly Global Economic Report
OECD Composite Leading Indicators
(data as of 30 November 2023)
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.
Long-Term View (G-20 Total)
Zoomed-In View (G-20 Total)
Below is our latest heat-map of the Composite Leading Indicators for various monitored regions.
- Red/Green numbers indicates above/below average future projected economic growth.
- Red/Green boxes indicates CLI rate of 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.
Click to set custom HTML
J.P. Morgan Purchasing Managers Index (PMI)
(05 December 2023)
(05 December 2023)
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 50.4 (50.0 previous month)
- Global manufacturing continues in contraction; global services appear to have begun to recover
- Job growth slows to standstill
Global Composite Output Index vs. Global GDP
There tends to be a reasonably tight correlation between the Global Composite Output Index and subsequent global GDP. The current Composite Output Index implies a forward global GDP reading approaching 3.0%.
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 slowing of global growth from the early summer 2023 peak. The Global Composite Index remains in expansion (reading above 50) but global manufacturing remains in contraction (reading below 50).
World Bank Global Monthly Outlook
(November/December 2023)
(November/December 2023)
U.S. Economic Growth & Inflation
Year-over-Year GDP growth
The US economy expanded 3% year-on-year in the third quarter of 2023, slightly higher than 2.9% in the advance estimate, and above 2.4% in Q2. 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 5.2% in Q3 2023, higher than 4.9% in the preliminary estimate, and forecasts of 5%. It marks the strongest growth since Q4 2021. Nonresidential investment was revised higher to show a 1.3% rise instead of a 0.1% fall initially estimated, as the drop in equipment was shorter (-3.5% vs -3.8% in the advance estimate) and structures surged 6.9% (vs 1.6%). Also, residential investment rose for the first time in nearly two years and at a much faster pace than initially expected (6.2% vs 3.9% in the advance estimate). Meanwhile, private inventories added 1.4 pp to growth, above 1.32 pp in the previous estimate and government spending increased faster (5.5% vs 4.6%). On the other hand, consumer spending went up 3.6%, slightly less than 4% in the advance estimate, but remaining the biggest gain since Q4 2021. The slowdown was mainly due to services spending. Exports soared 6% (vs 6.2%) and imports increased less (5.2% vs 5.7%).
Annualized Inflation
The annual inflation rate in the US slowed to 3.2% in October 2023 from 3.7% in both September and August, and below market forecasts of 3.3%. Energy costs dropped 4.5% (vs -0.5% in September), with gasoline declining 5.3%, utility (piped) gas service falling 15.8% and fuel oil sinking 21.4%. Additionally, prices increased at softer pace for food (3.3% vs. 3.7%), shelter (6.7% vs. 7.2%) and new vehicles (1.9% vs. 2.5%) and continued to decline for used cars and trucks (-7.1%). On the other hand, prices rose faster for apparel (2.6% vs. 2.3%), medical care commodities (4.7% vs. 4.2%), and transportation services (9.2% vs. 9.1%). Compared to September, the CPI was unchanged, the least in fifteen months, and below forecasts of a 0.1% rise, as lower gasoline prices (-5%) offset increases in prices for shelter (0.3%), natural gas (1.2%) and food (0.3%). Meanwhile, the core CPI unexpectedly rose 4% on the year and 0.2% on the month, below forecasts of 4.1% and 0.3% respectively.
Eurozone Economic Growth & Inflation
Year-over-Year GDP growth
The GDP in the Eurozone edged up a meagre 0.1% year-on-year in the third quarter of 2023, the weakest reading since the contractions in 2021, and below forecasts of 0.2%, preliminary figures showed. GDP Annual Growth Rate in Euro Area averaged 1.58 percent from 1995 until 2023, reaching an all time high of 14.50 percent in the second quarter of 2021 and a record low of -14.20 percent in the second quarter of 2020.
Quarter-over-Quarter GDP growth
The Euro Area economy shrank 0.1% on quarter in the three months to September 2023, worse than market forecasts of a flat reading and following an upwardly revised 0.2% rise in the second quarter, preliminary estimates showed. It marks the first contraction since 2020 when the covid-19 pandemic weighed. Among the bloc's biggest economies, the GDP shrank in Germany (-0.1%), stalled in Italy and rose modestly in France (0.1%) and Spain (0.3%). Year-on-year, the economy advanced a meagre 0.1%, below forecasts of 0.2%. The ECB expects the Euro Area economy to grow 0.7% only in 2023, as tighter financing conditions and high prices weigh on domestic demand, foreign demand remains subdued and the industrial sector continues to contract, specially in Germany. GDP growth is expected to pick up to 1% in 2024 and 1.5% in 2025.
Annualized Inflation
The inflation rate in the Euro Area declined to 2.4% year-on-year in November 2023, reaching its lowest level since July 2021 and falling below the market consensus of 2.7%, a preliminary estimate showed. Meanwhile, the core rate, which excludes volatile food and energy prices, also cooled to 3.6%, marking its lowest point since April 2022 and coming in below forecasts of 3.9%. The energy cost tumbled by 11.5% (vs -11.2% in October), and the rates of inflation eased for services (4.0% vs 4.6%), food, alcohol, and tobacco (6.9% vs 7.4%), and non-energy industrial goods (2.9% vs 3.5%). On a monthly basis, consumer prices fell by 0.5% in November, the largest monthly decline since January 2020.
Japan Economic Growth & Inflation
Year-over-Year GDP growth
The Gross Domestic Product (GDP) in Japan expanded 1.60 percent in the second quarter of 2023 over the same quarter of the previous year. GDP Annual Growth Rate in Japan averaged 1.74 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 -9.90 percent in the second quarter of 2020.
Quarter-over-Quarter GDP growth
The Japanese economy shrank 0.7% qoq in Q3 of 2023, compared with a flash figure of a 0.5% contraction and after a downwardly revised 0.9% growth in Q2. It was the first GDP contraction since Q3 of 2022, amid elevated cost pressure and mounting global headwinds. There were declines in both private consumption (-0.2%, compared with a flat reading in preliminary data and Q2 figure of a 0.6% drop) and capital expenditures (-0.4%, compared with a 0.6% fall in a flash reading and Q2 print of a 1.3% decline). Also, public investment decreased more than initially thought (-0.8%, compared with a 0.5% fall in preliminary print and after a 1.5% growth in Q2). Net trade was also a drag on the GDP, as exports (0.4% vs 3.8% in Q2) rose less than imports (0.8% vs -3.3%). Meantime, government spending rose 0.3%, in line with preliminary figures and after a 0.1% decrease in Q2.
Annualized Inflation
The annual inflation rate in Japan rose to 3.3% in October 2023 from 3.0% in the prior month, pointing to the highest print since July. Prices accelerated for furniture & household utensils (6.9% vs 6.2% in September), culture & recreation (6.4% vs 4.6%), and miscellaneous (1.8% vs 1.7%). At the same time, the cost of fuel, and light fell at a softer rate (-10.0% vs -14.3%), due to electricity (-16.8% vs -24.8%) and gas (-10.2% vs -12.5%). By contrast, inflation was unchanged for education (at 1.3%), while prices eased for housing (0.8% vs 1.2%), transport (3.2% vs 3.5%), clothes (3.0% vs 3.4%), and healthcare (2.3% vs 2.4%). Also, food prices increased by 8.6%, following a 9.0% rise in September. Core inflation rate edged up to 2.9% from September's 13-month low of 2.8%, slightly below consensus of 3.0% but stayed outside the Bank of Japan's 2% target for the 19th month. On a monthly basis, consumer prices increased 0.7%, the most since April 2014, after a 0.3% gain in September.
China Economic Growth & Inflation
Year-over-Year GDP growth
The Chinese economy expanded by 4.9% yoy in Q3 2023, beating market forecasts of 4.4% and offering hopes that it will meet the official annual target of around 5% this year, as sustained stimulus from Beijing offset the impact of a prolonged property crisis and weak trade. The country's GDP in Q2 grew 6.3%, amid a low base of comparison from last year when Shanghai and other major cities were under strict lockdowns. In September alone, retail sales rose the most in 4 months, up for the 9th consecutive month; and industrial output growth stayed at its highest level since April. Meantime, the surveyed jobless rate fell to a 22-month ow of 5%, while fixed investment continued to grow in the first 9 months of 2023. Data released earlier showed exports fell at a slower pace, partly because of a peak shipping season for Christmas products. Considering the first 9 months of the year, the economy advanced 5.2%. Last year, the GDP added 3%, missing official goal of about 5.5%.
Quarter-over-Quarter GDP growth
The Chinese economy grew by a seasonally adjusted 1.3 percent in Q3 of 2023, topping market expectations of 1.0 percent and sharply accelerating from a downwardly revised 0.5 percent increase in Q2. This was the fifth consecutive period of quarterly expansion, buoyed by a slew of monetary stimulus measures over the past three months, including interest rate cuts and constant liquidity injections by the country's central bank. Meantime, the property sector remains a drag on the economy, as China’s biggest property developers faced a large-scale default. “The national economy continued to recover, and high-quality development was solidly advanced, laying a solid foundation to attain the annual development goals,” China’s statistics bureau said in a statement. "We must also note that the external environment is becoming more complex and severe, domestic demand is still insufficient, and the foundation for economic recovery still needs to be consolidated.”
Annualized Inflation
China's consumer prices dropped by 0.2% yoy in October 2023, compared with a flat reading in the prior month and forecasts of a 0.1% fall. The statistical office said the drop in CPI was due to an ample supply of agriculture products because of good weather and a fall in consumption after the Golden Week holiday at the start of October. Food prices declined the most in 25 months (-4% vs -3.2% in September), falling for the fourth straight month due to a steeper fall in pork prices. Meantime, non-food inflation was unchanged (at 0.7%), as cost continued to rise for clothing (1.1% vs 1.1%), housing (0.3% vs 0.2%), health (1.3% vs 1.3%), and education (2.3% vs 2.3%). At the same time, prices for transport fell at a slower rate (-0.9% vs -1.3%). Core consumer prices, which exclude prices of food and energy, increased by 0.6% yoy in October, the least in 4 months. Monthly, the CPI unexpectedly fell by 0.2%, compared with the consensus of a flat figure and after a 0.2% rise in September.
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 RED. Overall sentiment has turned overly bullish (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 Int'l High Yield Bonds with U.S. Gov't Inflation Protected Bonds the worst performing.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) have delivered positive 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 Int'l Corporate Bonds with U.S. Gov't Inflation Protected Bonds lagging.
- U.S. Total Bond Market (RED) and International (ex-U.S.) Total Bond Market (BLUE) have delivered positive 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 Corporate Bonds with US Gov't Inflation Protected Bonds lagging.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) have delivered positive returns over the past month.
Past Week Bond Asset Class Performance
- Over the past week Int'l High Yield Bonds were the top performing bond class with Foreign Developed Market Gov't Treasury Bonds lagging.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) posted higher 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 gain of +0.19% over the past week. They have been rangebound since Nov 2022 but closed above the range this week.
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 the downtrends in the various US Treasury yields from their peak (bond prices move inverse to yields so falling treasury yields are bullish for bond prices).
A weekly close above the respective trend-lines and previous peaks would be a technical breakout and define the end of the 42-year bull market in bonds.
A weekly close above the respective trend-lines and previous peaks would be a technical breakout and define the end of the 42-year bull market in bonds.
U.S. treasury yields have risen in a parabolic manner since the covid lows of July, 2020. That has led to the largest losses in government bonds in history. They have now exceeded previous highs @ 3.036%-3.248% that have remained strong resistance since 2011. Current yield support is @ 3.744%-4.013%.
German 10 year Bund Yield
German 10 year treasury yields bottomed in early 2020 during the depths of the European Covid shutdowns. They have rebounded strongly on inflation concerns and have now exceeded 2011 highs.
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). The Yen has massively declined as a result of YCC greatly increasing Japanese import prices and corresponding inflation.
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). The Yen has massively declined as a result of YCC greatly increasing Japanese import prices and corresponding inflation.
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 the Swedish Krona with the US Dollar Index lagging.
1 Month Rolling Currency Performance
- Over the past 1 month rolling period the top performing currency has been the Japanese Yen with the US Dollar Index lagging.
Past Week Currency Performance
- Over the past week the top performing major currency was the Japanese Yen with Gold lagging.
U.S. Dollar: (Neutral Bias)
Commentary:
The USD up +0.76% 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: 101.00 / 105.16
Monthly: 102.29 / 106.84
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 101.00 / 105.16
Monthly: 102.29 / 106.84
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 103.29-103.61.
Over the past week the USD closed between its short term trend 50 and 200 day moving averages.
(Short Term Neutral)
(Short Term Neutral)
US Dollar Index Weekly charts
The weekly chart shows the recent trading range which was broken this week. The weekly support is 102.95-103.50 with resistance @ 108.42.
Price closed the week below the intermediate term trend 20 and 65 week moving averages.
(Intermediate Term Bearish)
Price closed the week below the intermediate term trend 20 and 65 week moving averages.
(Intermediate Term Bearish)
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 December the U.S. Dollar index has gained +0.54%. Price remains confined to the rising price channel from the 2011 lows and remains near multi-decade support @ 101.37-102.98.
Price closed November below the long term trend 10 month moving average switching the long term bias Bearish until months end.
(Long Term Bearish)
Price closed November below the long term trend 10 month moving average switching the long term bias Bearish until months end.
(Long Term Bearish)
Euro (Neutral Bias)
The Euro was down -1.10% over the past week. It had remained largely range bound between 116-123 over the past year before its most recent breakdown.
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 107.50/ 111.75
Monthly: 105.25 / 108.99
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 107.50/ 111.75
Monthly: 105.25 / 108.99
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 between the short term trend 50 and 200 day moving averages.
(Short Term Neutral)
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 between the short term trend 50 and 200 day moving averages.
(Short Term Neutral)
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 above the intermediate trend 20 week + 65 week moving averages.
(Intermediate Term Bullish)
This past week the Euro closed the week above the intermediate trend 20 week + 65 week moving averages.
(Intermediate Term Bullish)
Euro Monthly
For the month of December the Euro has lost -1.14%. On a monthly closing basis it closed the month of November above the long term trend 10 month moving average switching the long term outlook bullish until months end.
(Long Term Bullish)
(Long Term Bullish)
UK Pound (Bullish Bias)
U.K. Pound Daily Charts
U.K. Pound Weekly Charts
U.K. Pound Monthly Charts
The British Pound was down -1.20% 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 above its short term trend daily 50 +200 day moving averages and above the intermediate term trend 20 + 65 week moving averages. For the month of December it has lost -0.59% and closed the month of November above its long term 10 month moving average (which technically switches the long term bullish until months end).
(Short Term Bullish)
(Intermediate Term Bullish)
(Long Term Bullish)
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 120.35 / 127.34
Monthly: 121.33 / 133.09
This past week the Pound closed the week above its short term trend daily 50 +200 day moving averages and above the intermediate term trend 20 + 65 week moving averages. For the month of December it has lost -0.59% and closed the month of November above its long term 10 month moving average (which technically switches the long term bullish until months end).
(Short Term Bullish)
(Intermediate Term Bullish)
(Long Term Bullish)
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 120.35 / 127.34
Monthly: 121.33 / 133.09
Australian Dollar (Neutral Bias)
Australian Dollar Daily Chart
Australian Dollar Weekly Charts
Australian Dollar Monthly Chart
The Australian Dollar lost -1.44% over the past week. It topped in Apr/2021 and has been on a steady downtrend to present.
For the month of December the Aussie dollar has lost -0.42%. It closed the week above the short term trend 50 + 200 day moving averages and between the intermediate term trend 20 + 65 week moving averages. It closed the month of November above the long term trend 10 month moving average switching the long term outlook to bullish until months end.
(Short Term Bullish)
(Intermediate Term Neutral)
(Long Term Bullish)
Support / Resistance Levels (based upon respective time period closing price):
Weekly: 61.99 / 69.11
Monthly: 63.58 / 70.17
For the month of December the Aussie dollar has lost -0.42%. It closed the week above the short term trend 50 + 200 day moving averages and between the intermediate term trend 20 + 65 week moving averages. It closed the month of November above the long term trend 10 month moving average switching the long term outlook to bullish until months end.
(Short Term Bullish)
(Intermediate Term Neutral)
(Long Term Bullish)
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 -0.66% 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 between the short term trend 50 + 200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. For the month of December the Loonie has lost -0.14%. It closed the month of November below the long term trend 10 month moving average keeping the long term bearish until months end.
(Short Term Neutral)
(Intermediate Term Bearish)
(Long Term Bearish)
Support / Resistance Levels (based upon respective time period closing price)
Weekly: 72.96 / 75.51
Monthly: 72.20 / 75.90
The Loonie closed the week between the short term trend 50 + 200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. For the month of December the Loonie has lost -0.14%. It closed the month of November below the long term trend 10 month moving average keeping the long term bearish until months end.
(Short Term Neutral)
(Intermediate Term Bearish)
(Long Term Bearish)
Support / Resistance Levels (based upon respective time period closing price)
Weekly: 72.96 / 75.51
Monthly: 72.20 / 75.90
Key Weekly Returns (week ending 08 December 2023):
|
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
-0.04% +0.24% +0.57% +1.02% -1.21% |
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 |
+0.27% -0.97% -0.68% -1.81% -1.13% +0.01% +0.36% +0.02% +0.46% |
|
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 |
-3.36% -0.91% -3.32% -9.56% -3.09% -3.91% |
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 |
+0.89%
-1.41% -1.17% -0.69% -1.02% +1.22% |
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 lower over the past week and remains below previous support @ 3050-3147.
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 22 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 22 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 December 2023 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 149 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 December 2023 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 149 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 (which occurred as of the end of April, 2021) and is concerning. Overvalued equities combined with high inflation tend be be a very dangerous combination.
U.S. (NYSE) Margin Debt
(Source: Advisor Perspectives)
We have been studying 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%.
U.S. Equity market Valuation Models
(Source: D. Short)
Below is a graph representing 4 different long-term valuation measures plotted back to 1900 (120 years):
As of 01 December 2023 the average of these 4 measures places the U.S. stock market (S&P 500 index) as being 116% 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 2 standard deviations above the 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 December 2023 the average of these 4 measures places the U.S. stock market (S&P 500 index) as being 116% 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 2 standard deviations above the 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 (> 33.2% 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.
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Legend
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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:
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Region
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October-April
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May-September
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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% |
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Vanguard Total World Market (VT)
Vanguard FTSE European Total Market (VGK)
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Vanguard U.S. Total Market (VTI)
Vanguard FTSE Pacific Total Market (VPL)
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Vanguard FTSE Emerging Total Market (VWO)
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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):
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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):
