This is monthly Bear-o-meter report. New readers should use the search engine to read more about how the meter works. But in a nutshell, its a risk/reward reading of the US markets that takes a look at trend, sentiment, breadth, seasonality, value, and breadth momentum. Its a quantitative reading of the current trade off between risk and return on the markets. No opinions, just the facts.
Subscribers to our “ValueTrend update” newsletter will receive the newest issue in their mailboxes today. We discussed the factors – which included the Bear-o-meter readings since May, that drove us to hold cash into the current correction. We also discuss our current investment strategy. If you don’t subscribe, click here.
“The antithesis of courage is not fear. It is compliance”- Clyde D0-something, independent freedom reporter.
Because the Bear-o-meter incorporates breadth and sentiment, it can take a contrarian (aka against the current market direction) viewpoint. For the past 2 months, the meter has been reading “2”, which is a higher risk (although not run for the hills level) level. It seems that this caution flag was accurate. Now, the reading has moved to “3”. That’s hovering on neutral insofar as risk/reward goes – but it still has one toe in the higher-risk water, so to speak.
The 2 to 3 upgrade came from one of the breadth indicators. Breadth has been improving as we witness some of the value stocks and materials resurrect themselves of late. More on that in the newsletter.
So, in a nutshell, I believe we still have reasons to be cautious – and I continue to endorse taking a strategically lower risk stance in ones portfolio at this time. I note in the newsletter that the SPX could touch 4200-4300 in the current correction before the real opportunity arrives.
Final thought–from BearTraps:
“If you are a Republican, it’s a lot LESS dangerous to force a government shutdown than inflict a US default on global markets. The GOP knows the Dems are trying to impact the 2024 election. If you are the House Freedom Caucus, what is your next move with the latest Fitch action in your back pocket? The beast inside the market knows this, and so does Warren Buffett. This oracle has been busy taking his cash pile up by 36% year over year, to a near-record $147B. Buffett is backing up the truck on T-Bills near 5% this summer, NOT US equities.”
6 Comments
yield curve inversion has been a thorn in the banks backsides and not just regionals. If the short end remains sticky I don’t see this scenario changing anytime soon.
Same for utilities.
what do you think
?
Mark–if you read our VT update newsletter sent the other day, you may have noted that we hold a minor exposure to utilities. Yes, the inverted curve is a negative, and often signals a recession. Re utilities–I posted a chart of XUT (which we hold). The sector is at the very bottom of a base – if that breaks, we will need to sell. Although we hold very little at this point, we are waiting to see if the sector reacts to any potential for governments to discontinue tightening, should the signals for potential economic contraction hold true. To us, its no sure thing (hence the tepid entry to the sector), but the potential for an economic pullback is there, and that in turn would motivate an end to the tightening cycle. So, we wait and see. To put it bluntly–I wouldn’t suggest diving into these securities yet, but may be worth a toe in the water. Re bonds (per the video interview)–we dont hold any, but same idea, there is a potential for a move, but the base must be broken. Much of this is “wait and see”
There are more and more signals pointing to an insidious recession on the horizon. The high interest rates are impacting internal rates of returns for expansion projects of Canadian corporations. This was clearly inevitable when Bank of Canada began raising rates. The US and Canada should never have lowered to zero or negative real interest rates. leaving no powder dry when the crisis hits. Indeed, the consumer Staples ETF mentioned on BNN and other solid stocks should attract more attention. The AI Chat GPT stocks will be dramatically knocked out.
From the S&P chart there looks to be significant support around the 4190 area it could take a few months to get there which would match nice with what Brooke Thackery was saying about seasonal trends.
Ignore my previous comment you covered that in the VT update newsletter
Glad you subscribe Dave!