Market recap, open positions, new signals, and performance of six trading strategies. Tactical asset allocation, mean reversion, cross-sectional momentum, and equity long-short with weekly and monthly updating. Access the full report with a Market Signals or All-in-One subscription.
Contents
1. Performance of the Ensemble and Benchmarks
2. Market Recap and Comments
3. Positions and Performance of Strategies
4. Signal Summary for Next Week
1. Performance of the ensemble and benchmarks
Weekly return of the ensemble: -0.5%
The equity of the equally-weighted strategy ensemble fell 0.5% this week.
Year-to-date performance (Backtests, no leverage)
| YTD Return | YTD Maximum Drawdown | |
| Strategy ensemble | +9.4% | -2.1% |
| Invesco RSP ETF | +8.4% | -6.0% |
| SPDR SPY ETF | +15.3% | -5.4% |
On a risk-adjusted basis, the ensemble outperforms both the SPY ETF and its equal-weight counterpart, the RSP ETF. The ensemble also outperforms the latter on an absolute return basis.
2. Market Recap and Comments (July 22–July 26, 2024)
After a failed political assassination attempt and a massive IT failure, uncertainty increased this week due to political developments and mixed economic data. The S&P 500 index fell as much as 2.1% by Thursday but rallied 1.1% on Friday after the Fed intervened verbally. Specifically, a hawkish Fed governor announced that it was time to turn dovish, and this was enough for the market to rally amid high economic and political uncertainty.
The week saw mixed asset performance. The US dollar (UUP) ended the week flat. Commodities (DBC) fell 1.5%. Gold (GLD) was down 0.5%.
Large-cap stocks (SPY) trimmed losses to 0.8% after the Fed’s verbal intervention. Breadth improved, with the equal-weighted S&P 500 index (RSP) gaining 0.8% for the week. International stocks (VEU) lost 0.3%. On the last day, Fed dovishness helped fixed-income markets recover after a week of pressure. The TLT ETF gained 0.1%.
Next week, the Fed will probably announce a rate cut cycle, but the impact on the market is uncertain because participants have already discounted more cuts than the central bank is willing to provide. Anyone who thinks they can predict how the market will react in this highly non-linear stochastic environment, in our opinion, lacks a fundamental understanding of complexity. We admit we cannot make such predictions, and we resort to a strategy ensemble. Strategies can also fail, but they offer a reasonable probability of success. On the other hand, trying to guess market moves has a long-term negative expectation.
3. Positions and strategy performance: Friday, July 26, 2024
For a second week in a row, all strategies fell except for Dow-30 dollar neutral long/short, which gained 0.7% and continued delivering a small but valuable convexity. The Dow-30 mean reversion was down 0.9%, but it remains the most profitable strategy year-to-date, with a return of 16.3%. Asset cross-sectional momentum is the next most profitable strategy, with an 11.9% year-to-date return.
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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