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 30.1% (equal allocation, no leverage) versus a gain of 26.5% for the SPY ETF. Gold (GLD) is up 30.7% year-to-date. Tech stocks (QQQ) have gained 24%. The US dollar index (UUP) is up 12%, and long-duration bonds (TLT) are down 5.5%.
The ensemble (WeeklyReport) of the two momentum strategies exhibits a high correlation with the stock market (SPY), yet the former outperforms due to a few brief periods of higher returns. The strategy’s beta over the last 10 years is about 0.45.
2. Weekly Summary (November 18–November 22, 2024)
- Despite geopolitical escalations and increasing economic uncertainty, all assets experienced gains this week.
- Large-cap stocks (SPY) rose 1.7% on the back of solid earnings reports.
- Gold (GLD) surged 5.6% and recovered a good fraction of the post-election losses.
- The small gains in long-duration bonds were probably due to a “flight to quality.” The TLT ETF gained 0.3%.
- Commodities (DBC) rose 3.4% as a result of a broad-based rally.
- The US dollar index (UUP) rally continued with a weekly gain of 0.8%.
- Since January 3, 2022, bonds (TLT) have been down 33.2%, while gold and large caps (SPY) have gained 46.1% and 30.6%, respectively.
- During the week, the equally weighted Magnificent Seven stocks index experienced a slight decline of -0.1%. TSLA gained 4.1%, but GOOGL plunged 6%.
- All market sectors were up this week. Materials (XLB) gained the most, 3.1%. Health care (XLV) gained the least, 1.6%.
- Year-to-date, financials (XLF) are up the most, by 36.5%, while health care (XLV) has risen the least, by 6.9%, and is in oversold territory.
Year-to-date sector performance
Utilities (XLU) and communication services (XLC) started exhibiting short-term weakness later in the week, after solid gains this year.
Year-to-date asset performance
This year, the two main rivals have been gold (GLD) and large-cap stocks (SPY), up 30.7% and 26.5%, respectively. Gold is up due to geopolitical instability, fears of a resurge in inflation, and buying from central banks that are trying to diversify their reserves and reduce exposure to the US dollar. Large caps are up due to a number of interplaying factors: the positive AI story, disinflation and lower rates, and, as always, speculation and strong reflexivity. The rallying US dollar is causing challenges for both emerging (EEM) and international (VEU) markets. We wrote in the last weekly report:
As we have argued in other reports, investing in emerging markets (EEM) is equivalent to a short US dollar (UUP) position on average.
Commodities (DBC) are consolidating primarily due to relentless sales of crude oil from SPR and lower grain prices (see Section 5 for more details).
Bonds (TLT) are in the red year-to-date due to rising public debt and a rising, albeit still low, probability of stagflation. Last week, we wrote:
There are now more frequent references to a possible “stagflation” scenario, which, despite its low probability, is a rather ominous and extremely difficult economic state to navigate. But in an environment of exponentially rising public debt, everything is possible.
We will not attempt to provide a “big picture” of developments in the capital markets in these weekly reports, as we believe it is an illusion due to cognitive biases. Narratives about the “big picture” not only create beautiful newsletters but also attract attention, as they satiate people’s natural curiosity about understanding the market game. Unfortunately, the average market participant cannot fully comprehend the market game. This is the primary reason we concentrate on market positioning through quantitative models in our weekly reports rather than attempting to understand the mechanics of the market. We understand that this approach is not too popular, but we will always refrain from pretending we comprehend the mechanics of a complex, non-linear stochastic process to a level that can offer value rather than just an intriguing narrative for clickbait purposes.
In search of a good story
A continuation of the bull market might require a new positive story. Musk’s interplanetary travel and Mars colonization may serve this purpose. See this article for more details, along with an account of the drivers of previous market regimes.
3. Update on market positioning
The most recent update occurred on Friday, November 22, 2024, following the close of the market. The year-to-date, equally weighted performance is 30.1%. Below are the open positions and new signals.
|
This post is for paid subscribers
Already a subscriber? Sign in |
Premium Content
By subscribing, you have immediate access to hundreds of articles. Premium Articles subscribers have immediate access to more than two hundred articles, and All in One subscribers have access to all premium articles, books, and market signal content.
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
If you found this article interesting, you may follow this blog via RSS, email, or Twitter.
