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:
- Weekly summary.
- Ensemble performance
- Update on market positioning.
- Stock market forecast
- Capital markets update.
This report includes a brief analysis of the current market dynamic as compared to the 1990s. For more details, read this article. In addition, in Section 5, there is an updated stock market technical signal from a recent premium article.
1. Weekly summary (January 21–January 24, 2025)
- Following the inauguration, stocks experienced gains due to calls for lower rates, massive investments in AI, and lower crude oil prices. Large-cap stocks (SPY) ended the week with a gain of 1.7%.
- Gold (GLD) gained 2.5% on the back of a retreating US dollar index (UUP), which fell 1.7% after demands for lower rates from the new administration.
- Long-duration bonds initially saw gains, but perceptions of persistent inflation and the demand for lower rates were bearish. The TLT ETF ended the week unchanged.
- Commodities were mostly up, but the DBC ETF fell by 0.9 due to lower crude oil prices.
- Since January 3, 2022, bonds (TLT) have been down 35.1%, while gold (GLD) and large caps (SPY) have gained 49.5% and 33.8%, respectively.
- During the week, the equally weighted Magnificent Seven stocks index gained 1.6%. Tesla (TSLA) and Apple (AAPL) fell 4.7% and 3.1%, respectively. However, Meta Platforms (META) surged 5.7%.
- All market sectors gained this week, except energy (XLE), which fell 2.8% due to the talk about lower crude oil prices.
AI comment: “Concerns over falling crude oil prices, which typically dampen investor sentiment towards energy stocks, are to blame for the decline in the energy sector. These price forecasts negatively impacted energy stocks, despite most sectors experiencing gains.”
Sector ETF performance
Industrials (XLI) are up the most year-to-date, with a gain of 7.1%. All sectors show gains this year, except consumer staples (XLP), which is down 0.9%. Since 2022, energy (XLE) is up the most, by 83.7%, while real estate (XLRE) is down 11%. Note that the second most profitable sector since 2022 is technology (XLK), which is up 41.1% and that amounts to slightly less than half the gains of energy (XLE) in the same period.
Not the 1990s.
Below we look at the rolling 10-year performance of three key metrics for the S&P 500 index total return: the Sharpe ratio, the annualized return, and the total return.
This is an excerpt from a recent article:
During the 1990s bull market, the 10-year Sharpe ratio reached as high as 1.5, the 10-year annualized return grew to about 20%, and the 10-year total return climbed to more than 510%. Due to the dot-com crash and the financial crisis, these metrics plunged to -0.2, -4.2%, and -34.5%, respectively.
Quantitative easing and massive deficit spending, coupled with low rates, created fertile ground for speculative investments and technological growth. After the correction of 2018, the 10-year rolling Sharpe ratio, annualized return, and total return reached 1.1, 17.7%, and 382%, respectively. Since then, the market has not recaptured those levels for these key metrics. The above charts show that all three metrics have moved sideways since 2018.
This market has little relation to the 1990s bull market. All three key performance metrics have been consolidating since 2018. Most investors confuse the price level with returns, but it is the latter that determines wealth growth, as quants understand.
2. Ensemble 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 4.4% (equal allocation, no leverage) versus a gain of 3.7% for the SPY ETF. Gold (GLD) is up 5.6% year-to-date. The US dollar index (UUP) is down 0.7%, and long-duration bonds (TLT) are down 0.1%. Since 2024, the ensemble is up 31.6% versus 29.6% for the SPY ETF.
The ensemble’s (WeeklyReport) beta since 2017 is 0.28, and correlation with the S&P 500 index is 0.55. The Sharpe ratio is 0.88. See Section 3 for details on market positioning.
3. Update on market positioning
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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.
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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