Market recap, open positions, new signals, and performance of six trading strategies. Tactical asset allocation, mean-reversion, cross-sectional momentum, and equity long-short. Access the full report with a Market Signals or All-in-One subscription.
Contents
1. Market Recap and Comments
2. Ensemble Performance
3. Positions and Performance of Strategies
4. Signal Summary for Next Week
1. Market Recap and Comments (January 16–January 19, 2024)
Large-cap stocks (SPY, +1.2%) and the US dollar (UUP, +0.9) gained in the holiday-shortened week. All other assets fell, including international stocks (VEU, -1.6%), long-duration bonds (TLT, -2.5%), and gold (GLD, -0.9%).
Stocks gained due to robust growth, but bonds fell due to worries about a resurge in inflation and uncertainty about the timing of rate cuts.
For the first three weeks of the year, large-cap stocks (SPY) are up 1.5%, but the equal-weight S&P 500 ETF (RSP) is down 1.3%, which implies that breadth is deteriorating. International stocks (VEU) are down 2.5% in the first three weeks of the year, while long-duration bonds (TLT) have lost 4.8%. Gold (GLD) is down 1.7% on the back of a stronger US dollar (UUP), which is outperforming all assets this year and has outperformed all assets since 2022 with a return of 16% (note that the US dollar index has gained 8% in the same period, but UUP includes income from T-Bills collateral).
Since the start of 2022, the TLT ETF is down 32.8%, while international stocks (VEU) have lost 4.7%. The SPY ETF is up 4.8% in the same period. Commodities (DBC) are up 11.4%, respectively, since 2022. Note that in the same period, gold (GLD) is up 9.9%.
Narratives in financial social media suffer from recency bias. Many investors rush to buy the best-performing assets or funds. That, along with financial media reinforcement, creates reflexivity that impacts the performance of quantitative strategies when there are corrections due to crowded trades. This is a reality of the markets we have to deal with, and market diversification combined with strategy diversification has the potential to provide better risk-adjusted returns.
Since 2022, the SPY ETF has been up 4.8%, but with a maximum drawdown of 24.5%. Strategy ensembles that ended up flat in the last two years (2022–2023) but with much lower volatility achieved their objectives. Chasing high performance comes with high risks. There is no free lunch.
2. Ensemble Performance
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