The roller-coaster world continues. This certainly holds true for markets – in particular stock markets – the past week/month/year(s). As we stand currently, after a whole lot of roller-coaster action, the S&P 500 is at levels we seen a week ago, six months ago and even a year ago. The only constant we have had strewn throughout this timeline is global uncertainty economically and defensive posturing from markets throughout.
SPX9’s overall structural health, as measured by the “H&UP” tally, now stands at 60% – an increase from 26% the previous week. This 60% level is within the general range SPX9 has been posting since the market bottom in February. This has also been the general upper range it has been in the past year. In fact, we actually have to go back to mid-to-late 2014 area to see where this metric was posting real strength whereby offensively oriented sectors were leading the charge with higher highs posted consistently.
Offensive leadership has been the significant missing piece in the structural makeup for the S&P 500 for more than a year now. With this, as identified, the index has gone nowhere in the time frame – roller-coaster action aside. Hence, this underlines the importance of monitoring the on-going structural dynamics within the S&P with a real focus on the type of sector leadership that is occurring.
The runaway leader in terms of strength and consistency has been and continues to be Utilities. The strength displayed by the sector vehicle (XLU), as well as the internal sub-industry component strength has been amazing. For the overall S&P 500, this type of continued leadership speaks to the current day defensive/cautious posturing by market participants.
Utility leadership has been joined by a fellow defensive sector of Consumer Staples for stretches of time in the past year. Unlike Utilities, Consumer Staples has been more uncertain in its leadership behavior that has come more in fits and starts. This has spoken to the incredible cautiousness of market participants at times being they were unwilling to even give good consistent bids to Staple type companies in the last year or so.
As we stand with the most recent week behind us we have yet again Utilities and Consumer Staples as confirmed leaders. Consumer Staples rejoined Utilities in the leadership ranking with a solid new high breakout which thwarted its attempt to trend down. From an inter-market view, chiming in on this defensive posturing is the incredible, if not ridiculous strength of government bonds. U.S. treasuries are runaway leaders as the mad dash for yield – seemingly no matter how small – continues in earnest domestically and globally.
On a global basis, when valued in U.S. dollars, we now have nearly $12 Trillion of various global government bonds that are now yielding negative rates as far as decades out to maturity in some cases! This means the holder is effectively paying for the right to hold said securities. With the Negative Interest Rate Policies (NIRP) globally and remaining near Zero Interest Rate Policies (ZIRP) here domestically, the off-the-charts chase for yield of any kind seemingly is kicking into extreme overdrive. Put this together with their inherent “flight to safety” features, or vehicles of choice for defensive posturing if you will and it leaves in its wake a concern that said “safe” vehicles may be lining up to become quite unsafe.
The bottom line as we stand currently, via the SPX9 system, is an on-going theme of caution and defensive leadership. This holds true in broader inter-market views as well. Treading carefully in these markets is certainly the operative phrase.
I wish you well…
Ken Reinhart
Director, Market Research & Portfolio Analysis
If you are new to the Weekly Views and would like more information on our various approaches and products please contact us for direct communication at 877-514-9477 or Stephanie@cornerstoneassetmgmt.com.
Footnote:
H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.
This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.
Σχόλια