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 makes a brief reference to the reactivation of the Monroe Doctrine, the creation of new spheres of influence, and the potential impact on equity and fixed income markets.
1. Weekly summary (January 6–January 10, 2025)
- Stocks fell in the holiday-shortened week due to a stronger-than-expected labor market and warning signs about sticky inflation. Large-cap stocks (SPY) lost 1.9%.
- Gold (GLD) gained 1.9% while the US dollar index (UUP) was up 0.6%. See Section 5 for more details.
- Long-duration bonds fell. The TLT ETF ended the week down 2.1%.
- Commodities (DBC) gained 3.2% amid a broad-based rally. All sectors saw significant gains, with metals rebounding the most. See Section 5 for more details.
- Bonds (TLT) are oversold, while commodities (DBC) are overbought.
- Since January 3, 2022, bonds (TLT) have been down 36.4%, while gold and large caps (SPY) have gained 45.2% and 27.7%, respectively.
- During the week, the equally weighted Magnificent Seven stocks index fell 2%. Nvidia (NVDA) was down the most, by 5.9%, but META gained 1.9%.
- Market sectors fell this week, with real estate and technology down the most.
AI comment: “Ultimately, this week’s market trends underscore a dynamic economic environment where traditional investments struggle while commodities like gold thrive, illustrating the ongoing shifts in investor priorities and sector performance amidst broader economic uncertainties.”
Sector ETF relative performance
Energy (XLE) is up the most year-to-date, with a gain of 3.2%. Health care (XLV) is the only other sector that is up year-to-date, with a gain of 1.5%. Real estate (XLRE) is down the most, by 3.7%.
Spheres of influence
A consensus is forming among geopolitical analysts about the new US administration’s plans to reactivate the 19th-century Monroe doctrine and redefine its sphere of influence. Canada and Greenland will play a key role in achieving this goal, along with the Panama Canal and possibly a few countries in Central America.
A return to the Monroe Doctrine will impact financial markets. Although there will be significant benefits in terms of security in the long term, the high cost of the new geopolitical architecture will require additional deficit spending, which could push bond yields higher. As bond yields rise, there is always the possibility of massive sales of equities by investors to purchase bonds. At this time, bond yields are probably not near crucial levels that could cause a massive equity sell-off, but this could occur slowly as investors update the probability of the various scenarios. There is also the scenario of abandonment of the plan to reactivate the Monroe Doctrine and instead fine-tuning the current architecture, in which case the most probable result will be an equity rally. The direction of bonds will depend on how the new administration deals with deficit spending and the rise of public debt. All in all, the markets are entering a new regime that could involve significant paradigm shifts and increased volatility. More details are in this video.
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 down 1.5% (equal allocation, no leverage) versus a loss of 1% for the SPY ETF. Gold (GLD) is up 2.5% year-to-date. The US dollar index (UUP) is up 1.2%, and long-duration bonds (TLT) have lost 2.1%. The ensemble’s (WeeklyReport) beta over the last 10 years 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.
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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