Is Halloween Arriving Early?
Is Halloween Arriving Early?
A summary of my latest strategy article, and links to other impactful research
In addition to captaining ETFYourself.com, I write regularly at etf.com and SeekingAlpha.com.
All etf.com articles are free to view. Click this link to reach my author page. I write there about 3-4 times a week, so there’s a nice library of timely topics I’ve covered there over the last several months. And, if you click on “FOLLOW AUTHOR” from my page, you will be alerted whenever my articles are posted there. There is a lot of excellent content and tools for investors at etf.com.
SeekingAlpha.com has a limited amount of information available for free, but all of the podcasts I do there do not require a subscription. I write there under the profile Sungarden Investment Publishing, and my articles analyze individual ETFs, some of my personal trading, and broad investment strategy. Seeking Alpha does allow us to re-post up to 250 words from a larger article, so I’m doing that here, and will do so from time to time when I think it makes sense.
In the case of the article I posted there yesterday, I presented a summary of what I’m seeing, with the bottom line contained in the title:
Halloween Comes Early - A Frightening Market Shows Risks Overwhelm Potential Gains
SPY: Halloween Comes Early - A Frightening Market Shows Risks Overwhelm Potential Gains
In particular, I want to draw your attention to the 2 biggest macro risks I see right now. These are reflected in the very low ROAR Score (10 on a scale of 0 to 100) and the S&P 500 X-Ray, which we update in our weekly newsletter. It shows that there is upside…because there always is that potential…but the downside risk is larger than the upside opportunity.
That’s how I think of everything in investing: its a constant tug-of-war, a balancing act. And it drives my decision-making, with a strong risk-management/risk-aversion bent at times like these.
Here’s the segment of that article.
1. Long-term interest rates may not be done rising, and that's competition for stocks. Remember that the S&P 500 is about flat for two years, and we're looking at the real possibility of consecutive declines in the price of the average S&P 500 stock. And yes, I hear all the chatter about how P/E ratios for non-FAANG stocks are very reasonable. But that assumes the earnings can keep going while consumer spending is gradually fading.
Long bond rates still have plenty of potential to rise. If they don't, we will truly have a unique situation after Halloween: An inverted yield curve that refuses to un-invert. That will send us running to the history books.
2. The US financial sector's shaky condition. I don't know what's the most likely straw to break the economy's back. Is it housing, commercial real estate, an over-leveraged hedge fund or the fact that banks, regional and larger, are in a precarious position because their bond portfolios are very long term, and the values of those have fallen sharply, stressing their lending capabilities?
I don't care to guess which might come first. All I'm concerned with is that all exist at the same time, along with consumer and government debt through the roof, as the lag effects of 11 Fed rate cuts start to seriously impact the economic picture. I'm less interested in predicting specific outcomes and focus on investing less aggressively during times of high risk, and more aggressively during times of lower risk.