October Market Update - Fiscal Support

S&P 500 lost 3.92% in September, finishing at 3,363.00. YTD through September 30, 2020 the S&P 500 is up 4.09%. Although the month was down, the S&P 500 gained 9.3% during Q3 2020. A snapshot of ETF asset class returns for the first three quarters of 2020 (please click on image to enlarge):

Now, let's review price, sentiment and valuation as we countdown to U.S. Election Day. Note: This will be my last monthly market update. Thank you for reading. 

September Market Update - Volatility Rising in a Stimulus Driven Market with a Presidential Election on the Horizon

 S&P 500 gained 7.01% in August, finishing at 3,500.31. YTD through August 31, 2020 the S&P 500 is up 8.34%. Volatility in markets increased for the last couple of weeks leading up to Labor Day weekend. When volatility rises in stocks, it often spreads to multiple asset classes. Investors frequently need to liquidate positions to calm their portfolio fluctuation. This situation can lead to temporary corrections in markets. How many market participants will need to press the sell button before the VIX is back below 26? Let's examine price, sentiment and valuation at the start of September.

August Market Update - Is This the Point of Maximum Complacency?

The S&P 500 gained 5.51% in July ending at 3,271.12. YTD through July 31, the S&P 500 is up 1.25%. At the end of July, U.S. market returns remain concentrated in large U.S. growth companies while many smaller U.S. companies struggle. Primary factors impacting returns in July include: 1) falling U.S. dollar and 2) a rally in the FAAMG (Facebook, Apple, Amazon, Microsoft and Google) stocks. I'll share more about market and economic perspectives after we examine price, sentiment, and valuation at the beginning of August 2020.

July Market Update - Preparing for More Challenges

The S&P 500 gained 1.84% in June ending at 3100.29. YTD through June 30, the S&P 500 is down 4.04%. Before we review price, sentiment and valuation, I'd like to highlight two quotes from a speech Vice Chair for Supervision and Chair of the Financial Stability Board at the Federal Reserve Randal K. Quarles gave at the Exchequer Club in Washington, D.C. on July 7, 2020:

"We know that the financial system will face more challenges. The corporate sector entered the crisis with high levels of debt and has necessarily borrowed more during the event. And many households are facing bleak employment prospects. The next phase will inevitably involve an increase in non-performing loans and provisions as demand falls and some borrowers fail." 

"According to the latest International Monetary Fund forecast, the global economy is projected to contract sharply by 4.9 percent in 2020, a much worse outcome than during the 2007–08 financial crisis. While some indicators suggest a rebound in activity, the path of recovery remains highly uncertain."

The high level of uncertainty over the medium term will allow the Fed to keep rates lower for longer. I'll share more thoughts on the market and economy after we review price, sentiment and valuation.

June Market Update - Temporary Euphoria

The S&P 500 gained 4.53% in May 2020, ending at 3,044.31. YTD  through May 31, the S&P 500 is down 5.77%. Financial conditions have changed considerably since the March low. Fiscal and monetary support have contributed to a spike in U.S. large cap stocks. The chart below highlights the performance of WTI crude. It provides an example, one of many, showing the volatility investors have recently experienced:

This chart  from MarketWatch shows the performance of Crude Oil WTI (NYM $/bbl) Front Month contract, updated as of June 7, 2020. Now let's review price, sentiment, and valuation for June 2020.

May Market Update - Non-Gaussian Planning

The S&P 500 gained 12.68% in April 2020, ending at 2,912.43. YTD the S&P 500 is down 9.85%. Market return data through May 1, reveals the S&P 500 is down 16.4% since its February peak. The S&P 500 had its best monthly gain since 1987. Outside of equities we see gold had its best monthly return in nearly four years. There's a lot to cover, so let's dig into price, sentiment, and valuation as we start May 2020.

April Market Update - A Full Credit and Employment Cycle with a Pandemic

The S&P 500 lost 12.51% in March 2020, ending at 2,584.59. YTD the S&P 500 is down 20%. Looking at this chart from Business Insider is extremely important this month.

Many Americans have been conditioned to believe that virus outbreaks can be contained "over there." Geographic separation was supposed to happen this time as well. For many Americans that logic lasted until February 29 when we learned of the first COVID-19 death in the U.S. For others this lasted until March 11 when the WHO declared COVID-19 a pandemic. Maybe the "over there" thinking ended later on the eleventh when the NBA suspended their season and folks heard Tom Hanks and Rita Wilson had COVID-19. This will be a longer post than normal, so let's jump right into price, sentiment and valuation for April 2020.

March Market Update - Watch the C Suite

The S&P 500 lost -8.41% in February. The spread of the coronavirus --COVID-19-- accelerated supply chain disruptions (started with tariffs), caused demand shocks in multiple industries, and in general, slowed the entire global economy during (or pulling forward) a window of economic vulnerability.  Let's dig into price, sentiment and valuation as we start March.

February Market Update - Novel Coronavirus

The S&P 500 lost 0.16% to start 2020. The first month of 2020 turned negative when China reported humans are suffering from the spread of the 2019 Novel Coronavirus, or 2019-nCoV. A novel coronavirus (nCoV) is a new coronavirus that has not been previously identified. It is a respiratory virus first identified in Wuhan, Hubei Province, China. To learn more about this virus and how halting its spread is impacting the economy read NY Times article, SARS Stung the Global Economy. The Coronavirus Is a Greater Menace. or BBC article, Coronavirus: The economic cost is rising in China and beyond. Bloomberg has an excellent article covering this topic, Charting the Global Economic Impact of the Coronavirus. Without further adieu, let's examine price, sentiment and valuation.

January Market Update - Commodities Rising

The S&P 500 gained 2.86% in December. For a summary of market returns for 2019, read Visual Capitalist's post How Every Asset Class, Currency, and Sector Performed in 2019.  After dropping significantly in October 2018, commodity prices have begun turning higher.  This increase and an upturn in inflation may be substantial economic themes for the first half of 2020. As I wrote in the March Market Update of 2019, the United States has never experienced 138 months of economic expansion. Remember, this is how long it will be if this economic expansion lasts until the U.S. presidential election in November. We know what increasing inflation and slowing growth means. Yes, stagflation season in the U.S. economy. Will it last for a couple of quarters and then reverse? Now let's review price, sentiment and valuation as we start 2020. Happy New Year!

December Market Update - Cycles Still Matter

The S&P 500 gained 3.4% in November. To further describe our current investment landscape Kathy Jones, Chief Fixed Income Strategist at Schwab Center for Financial Research, recently wrote, “Ever since the Federal Reserve reversed course and began easing policy, markets have enjoyed smooth sailing. It looks like it can last a while, since we don’t anticipate a shift in central bank policies any time soon. The problem is that market valuations become skewed in environments like this. Low interest rates and high liquidity encourage risk-taking and yield-seeking. Asset valuations become elevated and investors become complacent.” ECRI published an update November 19 titled Hard Data Still Decelerating. Lachman Achutan's news item is a must read for anyone studying the U.S. economy. Let's review price, sentiment and valuation as we start December.

November Market Update - Always Data Dependent

The S&P 500 gained 2.04% in October, ending at 3,037.56. The trailing 1-year return for the S&P 500 as of October 31, 2019 improved to 12.02%. Every market cycle has it's seasons and we currently have four big investment themes influencing investors and thus, the markets: 1) indexation 2) momentum trend following 3) buybacks 4) Central Bank manipulated price discovery (as opposed to natural price discovery). As market observers, we can see all four of these factors impacting markets. To learn more about where we are as we enter November please watch Danielle DiMartino Booth's presentation at the Stansberry Investment Conference 2019 titled: Still Fed Up. If you want to learn more about her, you can read her bio. Now, let's review price, sentiment and valuation as we enter November 2019.

October Market Update - A Sluggish Economy Where We Trade for Free

The S&P 500 gained 1.72% in September, ending at 2,976.73. The sugar high from the world's two largest economies (USA and China) is over and unfortunately the sugar store is closed. What do I mean? China's stimulus to help pull the global economy out of a slowdown from the 2015-16 dip cannot be replicated. It looks probable the U.S. used up it's last bit of fiscal stimulus before election day with the Tax Cuts and Jobs Act of 2017. Our current economic landscape shows Europe learning about the downside of negative rates and a banking system that has not healed from the Great Recession, Japan's central bank left with no impactful stimulus, aging demographics, underfunded pensions, Brexit, a corporate debt fiasco-in-the-making, and a developed world running out of labor. With this backdrop, at best, the U.S. sees a choppy directionless market until the election. Let's jump right into the details and review price, sentiment and valuation.

September Market Update: Prudent Risk Management

The S&P 500 posted a -1.81% return for the month of August. The trailing 1-year return for the S&P 500 as of August 31, 2019 was a wee 0.86%. The concern in the market is that, a bit over a decade into the recovery from the financial crisis, a trade war between the U.S. and China could create a substantial drag on the global economy and push the U.S. into recession. When the 3-month T-Bill and 10-Year Treasury bond curve inverts for one quarter which it did at the end of June, it historically has been a warning signal to investors that they need to reduce risk exposures of their investments. To learn more about this phenomenon please listen to Men Faber's podcast episode #172 with Professor Cam Harvey. Campbell Harvey is Professor of Finance at the Fuqua School of Business, Duke University and a Research Associate of the National Bureau of Economic Research in Cambridge, Massachusetts and he wrote his 1986 dissertation on the topic of yield curve inversions preceding recessions. Let's review price, sentiment and valuation as we enter September 2019.

August Market Update: Growth and Inflation Cycles Declining

The S&P 500 gained 1.31% in July. The S&P 500 starts the month less than one hundred points from an all-time high. The real action over the last few months has been in the bond market. U.S. ten-year treasury bonds have dropped from 2.503% on May 1 to 1.89% on August 1. Looking at one-year trailing returns iShares 7-10 Year Treasury Bond ETF, symbol IEF, has outperformed SPDR® S&P 500 ETF, symbol SPY, 11.90% to 7.07%. Let's examine price, sentiment and valuation as we start August.

July Market Update: Climbing a Wall of Worry

The S&P 500 gained 6.89% in June. YTD for the first half of 2019 the S&P 500 is up 17.35% (Note: YTD increase was 17.51% at the end of April). June market returns played out like the opposite of the December 2018 market. In the last week of November 2018, the S&P 500 had an incredible rally pushing the Ivy Portfolio signal to "invested" as we started December. I suggested investors not take the bait and stay in "cash." December returns declined until our current rally started after Christmas Eve market lows. Contrast that time period with the May to June period. At the end of May stocks declined on news of new tariffs potentially being placed on Mexican imports. This drove the Ivy Portfolio signal to "cash" on the last trading day of May, setting investors up for the opposite of the scenario that happened in the November-December timeframe of 2018. As soon as Trump indicated that Mexico had complied with his administrations' requests for help monitoring the flow of migrants the tariff threat stopped. This news sent stocks higher, helping investors ride the bullish stock wave a bit longer. Let's examine price, sentiment and valuation as we start July.

June Market Update - Caution Mode

The S&P 500 finished May with a monthly loss of 6.58%. It ended the month at 2,752.06. Are you wondering what the mood in the market is at the beginning of June? Sovereign bond markets have your answer. In the U.S., the 10-year treasury yield dropped from 2.503% May 1 to 2.13% May 31. During the same period, the German 10-year moved from 0.016% to -0.20%. On May 24, Scott Minerd, Global Chief Investment Officer of Guggenheim Partners wrote, "We have seen how sensitive markets have been to the trade news. Sovereign bond yields around the world are sending an ominous message, which investors in risk assets ignore at great peril." Now, let's review price, sentiment, and valuation as we start June.

May Market Update - V-Shaped Recovery, Now What?

After gaining 13.07% in the first quarter of 2019, the S&P 500 started the second quarter increasing 3.93% in April. If you are interested in learning more about stock buybacks and their impact on the stock market since 2010, please read Chris Matthews, MarketWatch's Markets Reporter, article about corporate buybacks. Let's examine price, sentiment, and valuation for May.

April Market Update: 4, 3, 2, 1

The S&P 500 gained 1.79% in March and 13.07% for Q1 2019. The S&P 500 finished the month at 2,834.40; the change from 2,506.85 (12/31/2018 closing level) to 2,834.40 (3/29/2019 closing level) represents the best quarterly results for the S&P 500 since 2009 and best first quarter in 21 years, since 1998.  The U.S. growth cycle downturn continues after the U.S. growth cycle peaked in Q3 of 2018. Let's review price, sentiment and valuation as we prepare for the second quarter.

March Market Update - 138 Months

The S&P 500 gained 2.97% in February, ending the month at 2,784.49. Recent GDP forecasts, factoring in slowing economic data, show Q1 2019 GDP may decrease to around 1%. This macroeconomic environment creates difficult conditions for the S&P 500 to rise above the September 2018 record high of 2,940.91. I'll explain why I've titled this update "138 Months" in this month's summary. Let's review price, sentiment and valuation as we begin March 2019.