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 (WeeklyReport) are up 30.5% (equal allocation, no leverage) versus a gain of 28% for the SPY ETF. Gold (GLD) is up 28.5% year-to-date. Tech stocks (QQQ) have gained 25%. The US dollar index (UUP) is up 10.2%, and long-duration bonds (TLT) are down 1.8%.
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 0.28, and correlation is 0.55. The Sharpe ratio is 0.90.
2. Weekly Summary (November 25–November 29, 2024)
- Stocks and bonds gained on the holiday-shortened week, while commodities and the US dollar fell over uncertainty about the trade tariffs.
- Large-cap stocks (SPY) rose 1.2% in anticipation of a growing economy.
- Gold (GLD) fell 1.7% amid proposals for easing tensions in the Middle East.
- Long-duration bonds rallied. The TLT ETF gained 4%, although new data showed inflation is persisting.
- Commodities (DBC) fell 1.9% due to weakness in precious metals and grains markets.
- The US dollar index (UUP) rally paused with a loss of 1.6%.
- Since January 3, 2022, bonds (TLT) have been down 30.6%, while gold and large caps (SPY) have gained 43.7% and 32.1%, respectively.
- During the week, the equally weighted Magnificent Seven stocks index experienced a decline of 1.5%. AMZN gained 5.5%, but NVDA fell 2.6%.
- All market sectors were up this week except energy (XLE), which fell 1.8%. Health care (XLV) gained the most, 1.6%, while technology (XLK) was up the least, +0.1%.
Sector performance
Year-to-date, financials (XLF) are up the most, by 38.1%, while health care (XLV) has risen the least, by 9.3%. Financials (XLF), consumer discretionary (XLY), and communication services (XLC) are in overbought territory. In addition to those three sectors, utilities (XLU) and industrials (XLI) have made new, all-time highs.
Since 2022, all sectors are up except real estate (XLRE), which is down 4.7%. Energy (XLE) is up the most, by 90.6%, and outperforms the next most profitable sector by a significant margin, which is industrials (XLI), with a gain of 42.3%.
Tariff wars
We believe that geopolitics, not economics, drives the discussion about tariff wars. We have repeatedly stated in our weekly reports that geopolitics has primarily driven price action in capital markets this year, despite the influence of artificial intelligence developments and narratives on stocks.
In the last two months, the US dollar index has increased by about 5%, and since the election, it is up just 1.8%. We were surprised by analysts referring to tariffs as the current driver of US dollar strength. As the above monthly chart shows, in the broader context of historical price action, the recent movement in the US dollar index has been insignificant. Furthermore, no one can predict the impact on capital markets of the recently announced 25% or 100% tariffs on BRICS. As we have repeatedly stated in these reports, long term forecasts are mostly due to cognitive biases. The initial tariffs if ever imposed could significantly strengthen the US dollar, potentially mitigating their impact.
More importantly, the US economy depends heavily on products made overseas, and there is a limit on how much suppliers and distributors can absorb. A rise in inflation due to tariffs could eventually cause the US dollar to decline if the central bank does not move to hike rates. If rates rise, speculative investments, such as AI, will suffer, and the stock and bond markets could enter another bear regime. In other words, careful analysis will reveal that the party threatening to impose tariffs is the one with problems, and only international cooperation and sound trade agreements, not threats, can solve them.
However, as previously mentioned, the current game is geopolitical in nature, involving the control of resources for the next economic regime. This includes AI, electric vehicles, digital currencies, and green energy. Until we reach a resolution, conflicts, threats, and potentially new wars will persist. Volatility and uncertainty will escalate as the narratives that propelled the market upwards this year begin to wane. The significance of macroeconomics will diminish in the evolving new environment. Focusing on price action could offer better prospects of navigating markets forward, but risk management will be the key to survival and performance.
3. Update on market positioning
The most recent update occurred on Friday, November 29, 2024, following the close of the market. The year-to-date, equally weighted performance is 30.5%. 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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