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 All-in-One.
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 (WeeklyReport) are up 29.8% (equal allocation, no leverage) versus a gain of 29.1% for the SPY ETF. Gold (GLD) is up 27.1% year-to-date. The US dollar index (UUP) is up 10.5%, and long-duration bonds (TLT) are down 1%. The ensemble’s (WeeklyReport) beta over the last 10 years is about 0.28, and correlation with the S&P 500 index is 0.55. The Sharpe ratio is 0.90.
2. Weekly Summary (December 2–December 6, 2024)
- Stocks and bonds gained in anticipation of a rate cut in December, while commodities and gold fell.
- Large-cap stocks (SPY) rose 0.9% on a lower market breadth.
- Gold (GLD) fell 1.1% as the US dollar rebounded.
- Long-duration bonds were up for the week. The TLT ETF gained 0.8% after rising 4% the previous week.
- Commodities (DBC) fell 1% due to weakness in the energy and gold markets.
- The US dollar index (UUP) rebounded 0.3% after a loss of 1.6% the week before.
- Since January 3, 2022, bonds (TLT) have been down 30.0%, while gold and large caps (SPY) have gained 42.1% and 33.3%, respectively.
- During the week, the equally weighted Magnificent Seven stocks index gained 6.3%. TSLA, AMZN, and META surged 12.8%, 9.2%, and 8.6%, respectively. See below for more details.
- Market sectors ended the week mixed. Consumer discretionary (XLY) gained the most, by 4.7%, while energy (XLE) fell the most, by 4.7%.
- Year-to-date, communication services (XLC) are up the most, by 40.1%, while health care (XLV) has gained the least, by 7%. Communication services (XLC) and consumer discretionary (XLY) made new, all-time highs and are in overbought territory.
Magnificent 7 performance
AMZN and META are trading at new, all-time highs after surging this week 9.2% and 8.6%, respectively. All seven stocks experienced gains, with TSLA leading the way with a gain of 12.8% this week. Year-to-date, NVDA is up 187.7% and has been a major driver of cap-weighted S&P 500 index gains.
The average gain of the Magnificent 7 stocks year-to-date is 63.4% versus a gain of 29.1% for the cap-weighted S&P 500 total index total return (SPY) and a gain of only 18.8% for the equal-weight S&P 500 index total return (RSP).
Below is an excerpt from this week’s Market Signals report:
Anyone with a slight idea of what is happening in this market knows that this year’s performance is primarily due to a concentrated boost by a few technology stocks… Fundamental factors had a small impact on the market’s rise this year.
Fundamentals lost their relevance when quantitative easing began and suffered a final blow due to pandemic fiscal spending and ongoing deficit spending. Any attempts to forecast markets using fundamentals or explain price action are futile exercises. As long as investors commit to tech sector narratives about perpetual growth, disinflation, and lower rates, the market will continue rising. At some point, narrative exhaustion will occur, and reality will sink in. The result will be a bear market and significant losses for investors.
Permabulls assert that even following a correction, the market will rebound, as it has consistently done in the past. However, a significant number, if not the majority, of these individuals lack a stake in the market, and ad click schemes often shape their assertions. The main problem is recovery times and opportunity loss. It took more than 6 years for the S&P 500 total return to recapture the 2000 highs, but those who were patient enough to stay invested after a 45% decline faced a 55% bust in the subsequent financial crisis bear market. Therefore, realistic expectations about a possible bear market development are of paramount importance to investors but also traders who will try to profit from shorting stocks. In Section 5, below, we include two indicators that offer some perspective on the possible timing of a bear market.
3. Update on market positioning
The most recent update occurred on Friday, December 6, 2024, following the close of the market. The year-to-date, equally weighted performance is 29.8%. 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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