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General Market Gauge and Performance Q4
- 1. General Market Gauge And Performance Q U A R T E R 4 - 2 0 2 1
- 2. Scoring Overview Indicator Q2 - 2019 Q3 - 2019 Q4 - 2019 Q1 - 2020 Q2 - 2020 Q3 - 2020 Q4 - 2020 Q1 - 2021 Q2 - 2021 Q3 - 2021 Q4 - 2021 Treasury Yield Curve Warning Warning Warning Warning Warning Warning Cautious to Warning Cautious to Warning Cautious to Warning Cautious Cautious Treasury Yield Spread Spread Warning Warning Warning Warning Warning Warning Warning Warning Warning Warning Warning Credit Spreads Cautious Cautious Okay to Cautious Cautious Warning Warning Cautious to Warning Okay Okay Okay to Cautious Cautious Okay Okay S&P 500 Moving Averages Cautious Cautious Okay Warning Cautious Okay Okay Okay Okay Okay to Cautious Cautious Okay ISM Manufacturing PMI PMI Warning Warning Warning Warning Okay to Cautious Cautious Okay Okay Okay Okay to Cautious Cautious Okay to Cautious Cautious Cautious Average Wage Growth Growth (YOY) Okay to Cautious Cautious Cautious Cautious Cautious to Warning Warning Warning Warning Warning Warning Warning Okay S&P 500 Net Profit Margin Okay Okay Okay to Cautious Cautious Okay to Cautious Cautious Okay to Cautious Cautious Okay to Cautious Cautious Cautious Cautious Okay to Cautious to Cautious Okay Okay Market Leadership Okay to Cautious Cautious Okay to Cautious Cautious Okay to Cautious Cautious Warning Warning Cautious to Warning Cautious to Warning Okay to Cautious Cautious Okay to Cautious Cautious Okay Okay VIX Cautious to Warning Cautious to Warning Cautious to Warning Warning Warning Warning Warning Cautious Okay Okay Cautious Modified Valuations High/Normal Favor Value High/Normal Favor Value High Favor Value Value Normal Favor Value High Favor Value Value High Favor Value Value High Favor Value Value High Favor Value Value High Favor Value Value High Favor Value Value High Favor Value Value Growth – Value Reversion Value Relative Low Value Relative Low Value Relative Low Value Relative Low Value Relative Low Value Relative Low Value Relative Low Value Relative Low Value Relative Low Value Relative Low Value Relative Low Real GDP Okay Cautious Cautious to Warning Cautious to Warning Warning Warning Warning Cautious Cautious Cautious Okay Unemployment Rates Rates Cautious to Warning Cautious to Warning Cautious to Warning Warning Warning Warning Warning Cautious Okay to Cautious Cautious Okay to Cautious Cautious Okay Consumer Sentiment Sentiment Cautious Cautious to Warning Cautious to Warning Cautious to Warning Warning Warning Warning Cautious Okay to Cautious Cautious Warning Warning Buffet Signal Warning Warning Warning Warning Warning Warning Warning Warning Warning Warning Warning
- 3. Scoring Changes Overview Indicator Q3 - 2021 Q4 - 2021 Treasury Yield Curve Cautious Cautious Treasury Yield Spread Warning Warning Credit Spreads Okay Okay S&P 500 Moving Averages Okay to Cautious Okay ISM Manufacturing PMI Okay to Cautious Cautious Average Wage Growth (YOY) Warning Okay S&P 500 Net Profit Margin Okay Okay Market Leadership Okay Okay VIX Okay Cautious Modified Valuations High Favor Value High Favor Value Growth – Value Reversion Value Relative Low Value Relative Low Real GDP Cautious Okay Unemployment Rates Okay to Cautious Okay Consumer Sentiment Warning Warning Buffet Signal Warning Warning Improvements in: • S&P 500 Moving Averages • Average Wage Growth (YOY) • Real GDP • Unemployment Rates Declines in: • ISM Manufacturing PMI • VIX
- 5. Treasury Yield Curve - C A U T I O U S 5 2.45 2.63 2.51 2.69 2.87 0.06 0.39 1.26 1.52 1.94 0 0.5 1 1.5 2 2.5 3 3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 3 Years Ago 1 Year Ago 6 Months Ago Quarter 3 - 2021 Quarter 4 - 2021 • Rising Rates • Flatter Curve • Kink @ 10Yr
- 6. Treasury Yield Spread - W A R N I N G - 6 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5 4 1/2/1998 1/2/1999 1/2/2000 1/2/2001 1/2/2002 1/2/2003 1/2/2004 1/2/2005 1/2/2006 1/2/2007 1/2/2008 1/2/2009 1/2/2010 1/2/2011 1/2/2012 1/2/2013 1/2/2014 1/2/2015 1/2/2016 1/2/2017 1/2/2018 1/2/2019 1/2/2020 1/2/2021 10 Yr - 2 Yr 10 Yr - 6 Mo 0.72 1.27 -0.5 0 0.5 1 1.5 2 1/2/2018 4/2/2018 7/2/2018 10/2/2018 1/2/2019 4/2/2019 7/2/2019 10/2/2019 1/2/2020 4/2/2020 7/2/2020 10/2/2020 1/2/2021 4/2/2021 7/2/2021 10/2/2021 • Rising Trend • Flatter Curve • Mind the Gap
- 7. -0.24 0.59 1.05 0.46 -1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5 4 Aaa Spread Aa Spread A Spread Baa Spread Monthly Average Credit Spreads Versus 10-Year Treasury - O K A Y - 7 • Negative Spreads • 2020 Tax Spike • Low starting point
- 8. S&P 500 Moving Averages - O K A Y 8 21,608 20,273 9,000 11,000 13,000 15,000 17,000 19,000 21,000 23,000 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 S&P 500 TR USD 50 Day MA 100 Day MA 200 Day MA • Last X 100 vs. 50 in Oct. • 200 Floor has momentum support 21,608 21,151 20,749 20,273 19,000 19,500 20,000 20,500 21,000 21,500 22,000 Oct-21 Oct-21 Oct-21 Oct-21 Oct-21 Nov-21 Nov-21 Nov-21 Nov-21 Dec-21 Dec-21 Dec-21 Dec-21 Dec-21
- 9. ISM Manufacturing PMI - C A U T I O U S - 9 61.1 56.06 30 35 40 45 50 55 60 65 70 Dec-94 Jul-95 Feb-96 Sep-96 Apr-97 Nov-97 Jun-98 Jan-99 Aug-99 Mar-00 Oct-00 May-01 Dec-01 Jul-02 Feb-03 Sep-03 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Jun-12 Jan-13 Aug-13 Mar-14 Oct-14 May-15 Dec-15 Jul-16 Feb-17 Sep-17 Apr-18 Nov-18 Jun-19 Jan-20 Aug-20 Mar-21 Manufacturing PMI Smoothed Average • Positive Trend Above Average • Appears to be a reversal from Cyclical downtrend
- 10. Average Wage Growth (YOY) - O K A Y - 10 5.84% 4.00% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Growth Threshold • Threshold broken • Increased MoM volatility • Difficult for Fed to validate consistently • Wage growth leads to persistent inflation
- 11. S&P 500 Net Profit Margin - O K A Y - 11 20.40 20.56 18.19 22.30 5 7 9 11 13 15 17 19 21 23 25 Sep-03 Feb-04 Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17 Apr-18 Sep-18 Feb-19 Jul-19 Dec-19 May-20 Oct-20 Mar-21 Aug-21 Jan-22 Jun-22 Nov-22 S&P 500 Net Margin Forecast(S&P 500 Net Margin) Lower Confidence Bound(S&P 500 Net Margin) Upper Confidence Bound(S&P 500 Net Margin) • New All Time High • Positive Trend Above Average • Upper Confidence Forecast for future All Time High
- 12. Market Leadership - O K A Y - 12 -25 -20 -15 -10 -5 0 5 10 15 Dec-97 May-98 Oct-98 Mar-99 Aug-99 Jan-00 Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 Oct-18 Mar-19 Aug-19 Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Rolling 36 Month Returns Cyclical - Defensive • Pent Up Market Leadership leads to faster regime change • Positive Trend Above Average
- 13. VIX - C A U T I O U S - 13 19.68 21.97 23.47 24.69 25.25 26.15 26.05 15 16 17 18 19 20 21 22 23 24 25 26 27 1 2 3 4 5 6 7 Vix Futures Term Structure 17.22 10 15 20 25 30 35 40 45 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 • Range Bound Vol Regime downtrend since March 2020 • Steepening Curve – Increased Uncertainty at 180 days (6 tenor) • Implied vs. Realized Vol Point Spread meaningful day to day swings 1 2 3 4 5 6 7 Vix Futures 19.68 21.97 23.47 24.69 25.25 26.15 26.05 % Contango 11.67% 6.82% 5.21% 2.25% 1.28% 2.27% -0.38% Difference 2.3 1.5 1.22 0.56 0.32 0.58 -0.1
- 14. Modified Valuations – PE Ratio - H I G H F A V O R V A L U E - 14 15.48 32.48 24.09 18.37 -5 0 5 10 15 20 25 30 35 40 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Growth - Value Growth Value S&P 500 7 Yr Average Growth 15 Yr Average Growth 7 Yr Average Value 15 Yr Average Value 7 Yr Average S&P 500 15 Yr Average S&P 500 7 Yr Average Growth - Value 15 Yr Average Growth - Value • Growth – Value is still at highest historic values • P/E Measures elevated but above recent averages
- 15. Growth – Value Reversion - V A L U E R E L A T I V E L O W - 15 7.11 -50 -40 -30 -20 -10 0 10 20 30 40 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 12 Month Growth - Value • Growth outperformance at 7.11% is significant • Reversion have been short lived over recent full market cycles • Within Historic Bounds (10%) on the upside
- 16. Real GDP – Quarterly Percentage Change YOY - O K A Y - 16 -9.1 12.2 4.9 6.7 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Q1 - 2008 Q2 - 2008 Q3 - 2008 Q4 - 2008 Q1 - 2009 Q2 - 2009 Q3 - 2009 Q4 - 2009 Q1 - 2010 Q2 - 2010 Q3 - 2010 Q4 - 2010 Q1 - 2011 Q2 - 2011 Q3 - 2011 Q4 - 2011 Q1 - 2012 Q2 - 2012 Q3 - 2012 Q4 - 2012 Q1 - 2013 Q2 - 2013 Q3 - 2012 Q4 - 2012 Q1 - 2014 Q2 - 2014 Q3 - 2014 Q4 - 2014 Q1 - 2015 Q2 - 2015 Q3 - 2015 Q4 - 2015 Q1 - 2016 Q2 - 2016 Q3 - 2016 Q4 - 2016 Q1 - 2017 Q2 - 2017 Q3 - 2017 Q4 - 2017 Q1 - 2018 Q2 - 2018 Q3 - 2018 Q4 - 2018 Q1 - 2019 Q2 - 2019 Q3 - 2019 Q4 - 2019 Q1 - 2020 Q2 - 2020 Q3 - 2020 Q4 - 2020 Q1 - 2021 Q2 - 2021 Q3 - 2021 Real GDP - Qtrly % Change YOY - Seasonally Adjusted GDPNOW • GDP growth slowed in Q3. • GDP now as coincident indicator shows higher uptrend
- 17. Unemployment Rates - O K A Y - 17 4.2 7.8 2 4 6 8 10 12 14 16 18 20 22 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Spread U3 (Official) U6
- 18. Consumer Sentiment - W A R N I N G - 18 67.4 40 50 60 70 80 90 100 110 120 Jan-99 Nov-99 Sep-00 Jul-01 May-02 Mar-03 Jan-04 Nov-04 Sep-05 Jul-06 May-07 Mar-08 Jan-09 Nov-09 Sep-10 Jul-11 May-12 Mar-13 Jan-14 Nov-14 Sep-15 Jul-16 May-17 Mar-18 Jan-19 Nov-19 Sep-20 Jul-21 6.88 0 1 2 3 4 5 6 7 8 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 % change from 1 Year Ago Consumer Price Index for All Urban Consumers: All Items in U.S. City Average, Percent Change from Year Ago, Monthly, Seasonally Adjusted
- 19. Buffet Signal - W A R N I N G - 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Less Than 0.50 0.50 - 0.75 0.75 - 1.00 Greater Than 1.00 Following 7 Year Returns Relative To S&P / GDP Ratio 10% + 5% - 10% 5% - 1.60 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 Jan-90 May-91 Sep-92 Jan-94 May-95 Sep-96 Jan-98 May-99 Sep-00 Jan-02 May-03 Sep-04 Jan-06 May-07 Sep-08 Jan-10 May-11 Sep-12 Jan-14 May-15 Sep-16 Jan-18 May-19 Sep-20 OK Caution Warning S&P / GDP 19
- 20. Broad Market Performance 20 6.17 8.55 0.58 11.03 5.12 7.09 -1.13 5.75 8.29 5.08 -1.46 7.87 10.84 5.36 -2.76 3.75 3.48 5.17 -0.45 2.69 2.29 5.05 -8.09 -1.31 -4.46 1.31 -0.88 -0.67 -3.37 1.83 0.05 0.01 Q1 - 2021 Q2 - 2021 Q3 - 2021 Q4 - 2021 S&P 500 TR USD S&P Global BMI NR USD DJ Industrial Average TR USD Russell 2500 MSCI EAFE NR USD MSCI EM NR USD Bloomberg Global Aggregate TR USD Bloomberg US Agg Bond TR USD
- 21. Long Term Performance 21 30.70 10.70 9.53 9.64 11.02 22.65 8.67 9.65 9.07 10.32 25.89 10.16 11.05 10.90 12.13 15.08 3.79 6.34 5.15 5.87 4.26 4.73 9.97 12 MONTH 15 YEAR 20 YEAR 25 YEAR 30 YEAR S&P 500 TR USD Russell 2000 TR USD Russell Mid Cap TR USD MSCI EAFE NR USD MSCI EM NR USD
- 22. Growth and Value Performance 22 2.12 11.93 1.87 13.37 10.77 4.99 -0.85 8.31 11.49 6.90 -0.22 9.01 0.24 10.87 0.81 8.16 9.56 4.71 -0.84 7.19 Q1 - 2021 Q2 - 2021 Q3 - 2021 Q4 - 2021 S&P 500 Growth TR USD S&P 500 Value TR USD S&P 500 Equal Weighted TR USD MSCI World Growth NR USD MSCI World Value NR USD
- 23. Sector Performance 23 1.62 3.31 -0.98 12.86 4.66 6.50 0.71 14.03 30.70 11.11 -2.06 7.87 15.99 8.36 2.74 4.57 3.18 8.40 1.43 11.17 11.41 4.48 -4.23 8.64 9.10 4.96 -3.47 15.20 9.02 13.09 0.88 17.54 2.16 11.56 1.34 16.64 2.80 -0.41 1.78 12.93 8.81 10.69 -0.81 -2.87 Q1 - 2021 Q2 - 2021 Q3 - 2021 Q4 - 2021 S&P Cons Staples Select Sector TR USD S&P Consumer Disc Select Sector TR USD S&P Energy Select Sector TR USD S&P Financial Select Sector TR USD S&P Health Care Select Sector TR USD S&P Industrial Select Sector TR USD S&P Materials Select Sector TR USD S&P Real Estate Select Sector TR USD S&P Technology Select Sector TR USD S&P Utilities Select Sector TR USD S&P Cmmncton Svces Select Sector TR USD
- 24. Other Performance 24 9.11 8.77 -1.45 3.22 3.73 -0.82 1.98 1.47 88.55 -17.35 5.96 -1.11 -14.73 -18.40 42.51 -23.67 6.92 13.30 6.59 -1.56 0.03 0.00 0.01 0.01 Q1 - 2021 Q2 - 2021 Q3 - 2021 Q4 - 2021 Global Yield Composite DB Long US Dollar TR USD CBOE Interest Rate 10 Year Treasury Note CBOE Market Volatility (VIX) Bloomberg Commodity TR USD ICE BofAML US 3M Trsy Bill TR USD
- 25. 25 End
Editor's Notes
- (Okay) - 0 (Okay to Cautious) - 1 (Cautious) - 2 (Cautious to Warning) - 3 (Warning) – 4 13 Signals Counted Towards Average – Changed From 12 In Q1 - 2020 Q2 – 2018 – 1.00 Q3 – 2018 – 0.92 Q4 – 2018 – 2.00 Q1 – 2019 – 2.17 Q2 – 2019 – 2.17 Q3 – 2019 – 2.50 Q4 – 2019 – 2.41 Q1 – 2020 – 3.54 Q2 – 2020 – 3.38 Q3 – 2020 – 3.00 Q4 – 2020 – 2.78 Q1 – 2021 – 2.00 Q2 – 2021 – 1.78 Q3 – 2021 – 1.77 Q4 -2021- Cautious Overall Overall average stance remained relatively unchanged, as we saw some positives with movements in Yield Curves, Credit Spreads, Profit Margins, and Market Leadership performance – however we saw more cautious moves in Moving Averages over the short run, and a big move in the consumer sentiment.
- (Okay) - 0 (Okay to Cautious) - 1 (Cautious) - 2 (Cautious to Warning) - 3 (Warning) – 4 13 Signals Counted Towards Average – Changed From 12 In Q1 - 2020 Q2 – 2018 – 1.00 Q3 – 2018 – 0.92 Q4 – 2018 – 2.00 Q1 – 2019 – 2.17 Q2 – 2019 – 2.17 Q3 – 2019 – 2.50 Q4 – 2019 – 2.41 Q1 – 2020 – 3.54 Q2 – 2020 – 3.38 Q3 – 2020 – 3.00 Q4 – 2020 – 2.78 Q1 – 2021 – 2.00 Q2 – 2021 – 1.78 Q3 – 2021 – 1.77 Q4 -2021 – 1.33 Cautious Overall Overall average improved modestly, as we saw some positives in S&P 500 Moving Averages, Average Wage Growth, Real GDP, and Unemployment Rates. In the VIX and ISM Manufacturing PMI however– however we saw more cautious moves.
- Economists are not in alignment with Fed Funds futures. The Street is focusing on 3-4 hikes, but look at the futures. Probability of 5 hikes = 24.8%, with 6 hikes at 9.7%. Get ready: the next few weeks you'll hear more and more economists starting to entertain 5 or 6 hikes. Implied path for the federal funds rate shifted up. steadily tightening labor market. faster normalization of monetary policy. Fed funds rate hikes together with balance sheet normalization will likely push both short-term rates and long-term yields upward. The low rate environment of the past several years has allowed households and firms to refinance their debt obligations and lock in low rates.
- Trigger: Okay – Low Rates and Steep Curve Cautious – Rising Rates and Curve Flattening Warning – Rates High, Curve Flat, Rates Falling Current: The 10-year Treasury yield rose, with estimates attributing the increase to a higher term premium. Yield was below the middle of the range observed during the GFC but remained about 1.25% higher relative to the lows observed in the summer of 2020. On a real basis interest rates are deeply negative
- Trigger: Okay – High but trending down or sideways Cautious – Low and Decreasing Warning – Negative and/or coming off lows quickly Current: Spreads came back off from a small dip sort of right in line with the general upward trend we have been seeing persist since it’s bottom about 2 years ago. We are about mid range here from what we can see from history and on a clear upwards path. While this march higher is not parabolic, we are going to keep our stance at warning for right now. The rising trend results in a flatter curve. The Gap between the 6 month and 2-year spreads typically lead to repricing in the yield curve.
- Trigger: Okay – At or Below Average and Stable or decreasing. Cautious – Increasing Trend and Band Within Average Warning – Increasing Trend and Above Average Current: The global economic recovery and ample liquidity kept corporate defaults low, despite the pandemic, supply chain disruptions, labor shortages and inflation. Credit is stable. 54 total defaults, lowest number of defaults since 2011. since higher interest rates will weigh on the valuations of risky assets. Credit quality for some sectors like oil majors will further improve in 2022. Not much movement here. Spreads are still very much lower than their historical averages for all credit ratings, with AAA showing us negative 53 bps against the 10 year Treasury. Therefore we are at or below average levels and are holding steady. We are going to move one more ½ step to okay for right now.
- Trigger: Okay – Market Above 50, 100, and 200 Day Averages Cautious – 50 Day Crosses Either 100 or 200 Day Averages But Market Still Exceeds 200 day Average Warning – Shorter Term Averages are Below Longer Term and Market is Below Averages Current: The S&P 500 has dropped below 50 and 100 day moving averages, but is still above the 200 day moving average as of the end of the quarter. The 50 day moving average is still above the 100 and 200 day average. We are updating our stand to in-between okay and cautious.
- Trigger: Okay – Positive Trend Above Average Cautious – Negative Trend Above Average Warning – Negative Trend Below Average Current: Move Okay to Cautious. We continue to be off from where we were in March of 2021, but are sort of bouncing around in this still elevated positions. Potential for a peak reading at 5 points above trend.
- Trigger: Okay – Positive Trend Below Threshold Cautious – Positive Trend Approaching Threshold Warning – Threshold Broken Prior to Large Market Movement (Usually a Couple Years) Current: Improvement here to Okay, with the Volatility of average wage growth, the 4% has broken threshold. This is one to watch as the it makes it difficult for Fed to validate consistently if inflation is persistent. Obviously still some weird values being presented on this chart.
- Trigger: Okay – Positive Trend Above Average Cautious – Negative Trend Approaching Average Warning – Negative Trend Below Average Current: Move to Okay, new All-Time High with net profit margins at 20.40% om average. The path forward is difficult to predict so we placed a trend analysis on potential moves in the upper and lower bounds, based on prior quarter moves. At the low end the red lines indicates a return to August 2021 profitability numbers.
- Trigger: Okay – Positive or No Trend and Positive Difference Cautious – Negative or No Trend and Negative Difference Warning – Negative Trend and Negative Difference Current: It is looking like a positive trend has developed in the difference between cyclical and defensive stocks.
- Trigger: Okay – Negative Trend Cautious – Reversing Trend and Below Average Warning – Positive Trend and Above Average Current: In December we ended with caution even as the Option-implied stock market volatility moved lower. VIX was 19.4 on January 10, above median value of 17.8 from 2000 until today. We are still Coming off of lows 30s in early December. Added the Vix futures Term Structure which is considered steep pricing volatility 7 months out at a nearly 7 point spread, or a 36% increase. Cautious.
- Trigger: High – All three measures are above average and trending upwards Normal – Measures are at or around averages with no trends Low – Measures below average Current: PE Ratios are still high and value is more reasonable given historical averages.
- Trigger: Growth Relative Low – Difference lower than or about (-10) or trending up from this point Value Relative Low – Difference higher than or about 10 or trending down from this point Current: Growth outperformance at 7.11% is significant, Reversion have been short lived over recent full market cycles, Within Historic Bounds (10%) on the upside
- Trigger: Okay – Positive trend Cautious – Decreasing trend off highs, but still above 2% Warning – Decreasing trend below 2% Current: GDP growth gained in Q4, the Slowdown from Q3 is coming off a record high from supply constraints from Covid-19. Included GDP now which has some indications of a higher uptrend, positive. Move to Okay.
- Trigger: Okay – Trending down off of previous highs – or outside of a sharp increase exponential type moment Cautious – Trending down and approaching prior lows Warning – Trending down and at or near lows or big positive movements Current: Unemployment rate fell. Payroll employment growth slowed in December. Still seeing a downward trend here and it appears to have steepened from last quarter. We are keeping our stance the same here at in okay, basically because we are hesitant to put a full play stance on these values, given the time frame between now and exponential moves in unemployment.
- Trigger: Okay – Trending up off of previous lows Cautious – Trend unable to meet previous highs and looking like it has reached a top or is starting to waiver after an upward trend. Warning – Upward trends are broken and may be starting to decrease or have been decreasing. Current: Consumer sentiment really cooled off in November. increased at a much slower pace, with a drop in purchases of goods offsetting more spending on services. And Obviously the headline dominated, 40-year high for CPI.
- Trigger: Okay – Market value is 50% - 75% or less than the GDP Cautious – Markets are over 75% of the GDP value but below 100% Warning – Markets are valued at over 100% of GDP Current: The ratio of the S&P 500 market cap to GDP only got more out of line over the past quarter. Keep in mind that GDP numbers are from end of March / beginning of April 2021. No matter what, we are still in warning territory here.
- While the S&P outperformed global markets again in the 4th quarter. The outperformance from the Russell 2500, didn’t keep up. The drop in Bonds, did not persistent after the 1Q2021.
- Incredible standout performance over the last Trailing 12 month period. very much in excess of long term averages.
- In the Risk-on environment in Q4, growth continued to lead this past quarter, making this 3 quarters in a row.
- Sectors offered us a bit of a mixed bag this quarter with some up and some down. Big winners were real estate and technology– while we saw biggest losers this quarter in communication services.
- Commodities tapered off continue to perform well, and the dollar still remains stable, given the inflation numbers posted.