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:
- Year-to-date performance
- Weekly summary.
- Update on market positioning.
- Stock market forecast.
- Capital markets update.
1. Year-to-date performance
We use two long-only cross-sectional momentum strategies to generate signals for capital markets and factor ETFs. See Section 3 below for open positions and signal updates.
Year-to-date, the weekly strategies are up 30% (equal allocation, no leverage) versus a gain of 27% for the SPY ETF. Gold (GLD) is up 29.7% year-to-date. Tech stocks (QQQ) have gained 26.1%. The US dollar index (UUP) is up 9%, and long-duration bonds (TLT) are down 3.3%.
Despite the high correlation between the ensemble (weekly report) of the two momentum strategies and the stock market (SPY), a few brief periods of outperformance account for the higher return. The strategy’s beta over the last 10 years is about 0.45.
2. Weekly Summary (November 4–November 8, 2024)
- Stocks surged as election uncertainty faded away. See below for more details.
- Large-cap stocks (SPY) surged 4.8% amid euphoria about the prospects of the US economy and corporate earnings.
- Gold (GLD) fell 1.8% on a rising US dollar after the election.
- Long-duration bonds (TLT) initially fell after the election but then rebounded to end the week up 1.8% in a directionless trade for about a month.
- Commodities (DBC) gained 0.7% due to gains in energy and grains.
- The US dollar index (UUP) ended the week with a gain of 0.7%.
- Since January 3, 2022, bonds (TLT) have been down 31.7%, while gold and large-caps (SPY) have gained 45% and 31.2%, respectively.
- For the week, the equally weighted magnificent seven stocks index surged 8%. TSLA jumped 29% (see Section 5 for more details), and NVDA gained 9%.
- All market sectors gained this week. The consumer discretionary sector (XLY) was up the most, by 7.5%. The consumer staples sector (XLP) gained the least, by 0.8%.
- Year-to-date, communication services (XLC) are up the most, by 33.5%, while health care (XLV) has risen the least, by 11.4%.
- Communication services (XLC) and consumer discretionary (XLY) are in overbought territory.
- Nvidia (NVDA) and Sherwin-Williams (SHW) replaced Intel Corp. (INTC) and Dow Inc. (DOW) in the Dow-30 index.
Election Euphoria
In the financial mainstream and social media, confusion and delusion are normal states. The major drivers of market analysis are biases. A lack of exposure to a large enough sample and numerous market cycles reinforce the biases. There are also instances of misinformation and attempts at disinformation. The combination of these factors results in a reduced significance of market forecasts.
Numerous articles and posts on social media claimed that the stock market rally was due to a Trump win. The market doesn’t care who wins as long as elections show a winner. Markets do not like uncertainty. Since both parties have managed to boost the stock market, they don’t care who wins.
On the other hand, the election results provided little comfort to the fixed-income market. Investors and traders know that whoever wins, deficits and the public debt will keep rising. Prices remain high despite a fall in the rate of change, which the economists wrongly, in our opinion, refer to as “inflation.”
The US dollar and gold are special cases. Gold fell after the election, but it slightly recovered. There is solid demand for gold in an environment of potential “fiscal dominance” and “entrenched inflation.” The US dollar initially surged but fell the next day. The policy surrounding the US dollar remains highly uncertain. Although debasing the US dollar has been used to boost equities, its future efficacy is uncertain. A decline in the US dollar could lead to outflows from equities and fixed income towards emerging markets, which would be a highly undesirable outcome.
Until policy intentions and their potential effects on the capital market become clear, the euphoria may persist. A policy mistake can trigger a large sell-off, limiting the maneuverability space. Therefore, we believe that after the euphoria, reality will “sink in” and investors will start scrutinizing every potential move and change in policy. Therefore, there are high odds of increasing uncertainty and volatility early next year.
3. Update on market positioning
We use two cross-sectional momentum long-only strategies that generate signals for capital markets and factor ETFs.
The most recent update occurred on Friday, November 8, 2024, following the close of the market. The year-to-date, equally weighted performance is 30%. Below are the open positions and new signals.
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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.
Disclaimer: The Weekly Market Reports are provided for informational purposes only and do not constitute investment advice or actionable content. We do not warrant the accuracy, completeness, fitness, or timeliness for any particular purposes of the Weekly Market Reports. Under no circumstances should the Weekly Market Reports be treated as financial advice. The author of this website is not a registered financial adviser. Before subscribing, please read our Disclaimer and Terms and Conditions.
Charting and backtesting program: Amibroker. Data provider: Norgate Data
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