November 21, 2023
November 21, 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?
The current ROAR score is
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Date: Tuesday, November 28
Time: 5:00PM - 6:00 PM ET
Host: Rob Isbitts, Founder, ETFYourself.com
Agenda:
Quick ETFYourself.com site tour
Rob Isbitts latest market outlook
Your questions answered!
Questions submitted in advance to info@sungardeninvestment.com will receive first priority during the session.
Market in a Minute
I keep looking for signs of a bull market in stocks. But I can’t find them. Admittedly, I’m a tough grader. That goes hand in hand with being a risk manager first.
The S&P 500 is the best performer in 2023 among major, sector-diversified equity indexes, by far. That’s because a small number of giant stocks are hiding the fact that the rest don’t look anything like a bull market, and many are in textbook bear market phases.
So, while the S&P 500 is up more than 18% this year, the average stock is up 3%. Of the 11 S&P 500 sectors, 3 are up 30% or more, and 1 other is up 8%. The other 7 are down for the year or barely positive, below the return of T-bills. And the recent rallies in small caps and most other market areas that were down huge previously just prove the classic investment lesson about recovering from a loss.
Let’s use a bond ETF as an example of what I mean, since it applies to that market too. The wildly popular TLT (invests in 20-30 year US Treasury bonds) has rallied 10% since October 19. Bravo! Now it is “only” down 43% including dividends since August of 2020.
Bottom line here: declines in price do not automatically equal “value buys.” I suggest investors be tough graders, and wade into market segments that are way down, rather than jump in the deep end.
Until then, the plan remains:
Tread lightly in equity ETFs, with a particular focus on what can deliver returns in a matter of weeks or months, rather than years. There is still a high potential cost (risk) to “buy and hold” investing, and that might not change for a while. Adapt or take the risk. I choose the former.
Long-term bonds, commodities, and other non-equity asset segments are down in price, but not table-pounding cheap. At least, they are not acting like it. Furious 2-week rallies are more of a classic bear signal than bull indicator. Until that changes, the best bonds I see are US Governmment security ETFs: T-bill and short-term bond ETFs.
Do not take my commments immediately above to mean I’m happy and not worried about the US debt situation. I’m as frustrated as any American citizen about it. But the existence of a “printing press” is unique to the US, and that’s the backbone that continues to keep my Treasury ETF position much higher than normal. And by the way, after the last 4 years: pandemic, market crashes and surges, AI, war, etc., do investors even remember what “normal” feels like?
Our ROAR Score remains at 25, where it was boosted to last week following its extended stay way down at the 10 level. That means 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 10% ahead of a 60/40 portfolio since its inception at the start of 2022.
More investment strategy notes and thoughts are in the premium subscriber section below. For everyone, here is a chart of note:
When will they notice?
Here’s the annualized 3-year return of the equal weighted S&P 500 ETF, a.k.a. the performance of the average stock in the S&P 500 (ETF: RSP). What does my chartist’s eye see here?
Not long ago, the average stock was riding a 3-year average return of more than 20%. But it has quickly dropped to under 10%, as we see at far right on the chart.
Is that significant? It could be, and here’s why: perception and emotion. There is more to today’s markets that has to do with what they refer to as “narrative,” and a lot of that narrative is driven by media, broadcast and social. So I suspect investors will “feel” the drop in “what I made the past 3 years” more now than in the past. The markets are in our faces every day like never before.
Historically, when RSP’s 3-year trailing return falls like that, from above 20% a year to under 10% a year, it has meant 1 of 2 things: either we’re headed for recession/bear market (see 2000-2001 and 2007-2008) or a period of steady returns that eventually ended in a recession (see 2015-2018, then flash crash/recession in 2020).
This is one of many pictures that show just how powerful the Fed’s loose monetary policy was last decade. Powerful enough to keep the stock market humming, while consumer debt and government spending continued unabated. Fast-forward to today: same problems, no money-pumping. That 2016-2019 period might just be the best picture I’ve seen of what they refer to as the “Fed put” which means investors believe that the market can only fall so far before the Fed will do something to save it. Are today’s conditions such that this can happen again, or is this era sans safety net? To be determined.
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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)
