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 25.2% (equal allocation, no leverage) versus a gain of 21.3% for the SPY ETF. Gold (GLD) is up 32.1% year-to-date. Tech stocks (QQQ) have gained 19.3%. The US dollar index (UUP) is up 8.2%, and long-duration bonds (TLT) are down 5.1%.
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 (October 28–November 1, 2024)
- Stocks ended the week lower due to continuing disappointing quarterly earnings and early unconfirmed signs of possible stagflation.
- Large-cap stocks (SPY) fell 1.4% on top of a 0.9% loss the previous week.
- Gold (GLD) fell 0.3% and ended the week 2% below the all-time highs.
- Long-duration bonds (TLT) fell 1.1% on top of a 1.8% the previous week due to slower growth at persisting inflation levels.
- Commodities (DBC) lost 2% due to losses in energy, grains, and precious metals. See Section 5 for more details.
- The US dollar index (UUP) ended the week slightly higher by 0.1%.
- Since January 3, 2022, bonds (TLT) have been down 32.9%, while gold and large-caps (SPY) have gained 47.7% and 25.2%, respectively.
- For the week, the equally weighted magnificent seven stocks index fell 1.7%. TSLA plunged 7.5%, and NVDA lost 4.3%.
- All market sectors fell this week, except for communication services (XLC), which gained 1.7%. The real estate sector (XLRE) fell the most, by 3%.
- Year-to-date, communication services (XLC) are up the most, by 28.2%, while energy (XLE) has risen the least, by 7.6%.
- The US Dollar Index (UUP) is in overbought territory.
Stagflation Uncertainty
Lower mega-cap earnings, slower growth, and increased unemployment, along with persisting inflation, could be signs of possible stagflation. This scenario is unlikely as the central bank currently has more tools at its disposal to stimulate the economy. However, as opposed to the past, there is now a formidable constraint to additional stimulus: the rising public debt. A possible scenario is that the central bank will overestimate nominal GDP growth and the public debt will rise further, even in an environment of higher inflation.
The complexity of the current macroeconomic conditions has caused market moves that have baffled analysts. A recent example is a rise in bond yields following a 50 basis point rate cut by the Fed on September 18, 2024.
In the last 32 trading days since the Fed rate cut, the 10-year note yield has surged 67.6 basis points. The linear thinking of many macro analysts led them to invest in long bonds, believing that a drop in rates would also result in a drop in yields. But the economy is a non-linear stochastic system, and linear thinking is rarely effective.
A 5-handle drop in 10-year note futures following the Fed rate cut is hard to digest for most analysts and market traders.
Rationalizing analysis failures often involves “denial of reality.” The goal in the markets should not be to make correct predictions followed by “victory laps,” but rather to make the right allocations to absorb the volatility in capital markets. Only a systematic process can effectively accomplish this. The human mind is susceptible to numerous biases that hinder the long-term success of discretionary market forecasts. Therefore, macroeconomic analysis makes more sense if there is a process to translate it into a systematic framework that offers well-defined signals for the various assets used to diversify a portfolio. Only a few macroeconomic analysts have reached this level of sophistication. In these reports, we steer clear of macroeconomic analysis and instead concentrate on analyzing price action and strategies, particularly asset and factor cross-sectional momentum for market positioning.
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 1, 2024, following the close of the market. The year-to-date, equally weighted performance is 25.2%. 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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