The weekly market reports include a market position update, a stock market forecast, and an analysis of capital markets. To access the full report, you must subscribe to Premium Articles, Weekly Premium Articles, or an All-in-One subscription.
Included in this report:
- Weekly summary.
- Update on market positioning.
- Stock market forecast.
- Capital markets update.
1. Weekly Summary (August 12–August 16, 2024)
- Stocks had a strong rally. Euphoria is back in the stock market, with investors eyeing new all-time highs.
- Large-cap stocks (SPY) surged 4%, the most since the week ending October 3, 2023. This week’s move was below two standard deviations based on the available sample of weekly returns since 1945.
- Long-duration bonds (TLT) gained 1.2% on the week due to conflicting signals about the economy’s strength.
- Commodities (DBC) ended the week unchanged. For the week, crude oil futures fell 0.2%.
- The US dollar index (UUP) finished the week lower by 0.6%.
- Gold (GLD) surged 3.3% to new, all-time highs as China allowed banks to start buying the precious metal again.
- Since January 3, 2022, bonds (TLT) have been down 28.7%, while large-caps (SPY) have gained 21.2%.
- For the week, the equally weighted magnificent seven stocks gained 6%. The NVDA surged 18.9%. This was the stock’s largest weekly gain since 24.6% for the week ending May 26, 2023.
- The technology sector (XLI) surged 7.7% this week, while the real estate sector gained the least, 0.1%.
Year-to-date asset performance
With a return of 21.4%, gold (GLD) has outperformed all other assets year to date. Large-cap stocks (SPY) are second with a return of 17.3%. Long-duration bonds and commodities are the worst-performing assets with less than a 1% return, but the former have recovered significantly from a 10% loss in April, while the latter have erased a gain of more than 8% in the same period.
The 10-year performance of the stock market never recovered its 1990s highs
After two back-to-back bear markets following the dot-com top, the 120-month (10-year) total return of the S&P 500 index plunged from a high of 490% in August 2000 to a low of -30% in February 2008. Then, due to massive quantitative easing and deficit spending, the 120-month total return recovered slowly and peaked at 367% in February 2018. A double top followed in September 2021, and since the 120-month return has fallen and not recovered materially, it has stayed above the long-term average.
Some analysts and investors focus on the price level and the new, all-time highs, but it is the total return in a suitable investing period that matters. In this respect, the stock market performance has not matched even closely the outstanding performance of the 1990s, despite all the central bank efforts and the skyrocketing debt.
As the price level increases due to deficit spending, the risks also increase, but returns have remained near their long-term average levels. Tail-risk hedging and/or efficient diversification can minimize risks, but they come at a high cost, which further impacts performance. See Section 4 for more details and a few examples. When a bear market occurs, permabulls, who consistently advocate for passive investing and dollar cost averaging, typically vanish, and many investors sell at a significant loss to safeguard their wealth. The permabulls reappear when the market rebounds, only to claim victory while ignoring the fact that many of those who followed their advice are no longer around to invest. Euphoria is the worst state of risk. This is the current state of affairs in the stock market. However, due to reflexivity, making top predictions is difficult. The market can surge higher in a state of euphoria that lasts longer than anticipated. This underscores the importance of risk management.
2. Update on market positioning
We use two cross-sectional momentum long-only strategies that generate signals for capital markets and factor ETFs. Year-to-date, both strategies outperform the S&P 500 total return by a wide margin. The equally-weighted performance year-to-date is 20.5%.
Last update: Friday, August 16, 2024, after the market close.
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Specific disclaimer: This report includes charts that may reference price levels. If market conditions change the price levels or any analysis based on them, we may not update the charts. All charts in this report are for informational purposes only. See the disclaimer for more information.
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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