December 5, 2023
December 5, 2023
The latest research, market indicators and trade summaries from Sungarden Investment Publishing
ROAR Score
(Return Opportunity and Risk)
If my choices are stocks and cash, what % would I have in the stock market right now?
Market in a Minute
For those confused and frustrated by trying to decide what gifts to get friends and family for the holidays, the financial markets have a message for you: “We’re confused and frustrated too!”
As I prepare to write and speak about year-end 2023 and provide a 2024 outlook for a few upcoming speaking events, my updated chart view is pretty clear: many market segments I track through ETFs are at decision points. My hunch is we will not have to wait until the last week of December to find out what’s in those “boxes.”
The broad stock market (S&P 500) appears stuck below the 4,600 level. I stand by what our S&P 500 X-Ray shows: until it breaks decisively through there, that’s the top, near-term. However, if it does break through, we could have a late 1999/early 2000 melt-up situation on our hands.
Underneath the surface, there are encouraging signs for parts of the stock market. I’d like to tell you that there is a consistent pattern to what looks increasingly attractive…but there is no pattern, other than that what has worked so well this year (a small number of giant stocks, mostly tech-related) does not look attractive. It is a disparate collection of industries and non-US ETFs, which I’ll detail in the premium commentary below.
I still see too many “flameouts” to convince me the stock market is attractive, beyond that eclectic mix of equity ETFs noted above. An ETF rallies 7-10% in a flash, then rolls right over. Recent examples include: gold, MLPs, and some segments of healthcare.
The bond market has rallied furiously, but I’m a tough grader. So when I looked back at the past 13 months, I saw that what just happened to TLT has happened several times, so I can’t just jump in to own very long-term bond ETFs. First, I have to ask, “why is this time different?” We may be on the verge of a true, sustained breakout in yield, but these rallies run hot and then something happens to change the momentum…because they were momentum trades for traders, not investments for intermediate-term model portfolios like the ones we track here.
The plan:
Understand that we are in a tight time window (under 4 weeks) until year-end, which will influence markets. So before we start making grand pronouncements about 2024, let’s be sure that 2023 doesn’t end with a “face-plant” in stocks, long-term bonds or both.
I am making changes to the 4-ETF and 7-ETF models, to take advantage of some of this “rotation” that presents opportunities. Details in the premium section below.
The best news might be that we are getting closer to those decision-points for many parts of the bond and stock markets. That is, where price patterns and market behavior goes from urgent and temporary to something I can be more confident in stepping in to own.
Despite all of the financial salespeople chatting up the “soft landing/strong markets” vibe, the fact is that the average S&P 500 stock (RSP) is where it was 3 months ago. Oh, and also 31 months ago! So I don’t feel the urgency to be the first one in if 2024 is to be a banner year for stocks.
Our ROAR Score remains at 25 for the fifth straight week. Our 2-ETF model portfolio is 25% in SPY (S&P 500) and 75% in BIL (1-3 month T-bills). This super-simple balanced risk portfolio, using only 2 ETFs, is now up 5.9% this year. Since its 1/1/22 inception, its “worst-case” drawdown is less than 8% from peak to trough, versus more than 17% for a 60/40 portfolio and more than 22% for the S&P 500.
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S&P X-Ray
The S&P X-Ray tracks our latest projected trading ranges
for the S&P 500
(Updated weekly on Tuesday, as of Monday’s market close)
