Week Ending 11 September 2020
The markets had a second week of losses with the S&P 500 closing the week at 3340. Given that we had five straight weeks of gains before that, it is not unusual for the markets to consolidate some before their next move. But what is that next move and when will it occur? That said, markets usually consolidate during times of uncertainty, and we sure have seen that. We have the uncertainty of COVID, vaccines, school openings, sports, and last but not least, the upcoming election. When these circumstances of uncertainty come up, I do like to look back at the “last time” to get a perspective. What comes first to mind is the election, and on 11 September 2016 the S&P 500 was 2127. On election day, 8 November 2016, the S&P 500 closed at 2139. During that time, the S&P was in a tight “consolidated’ range between 2085 and 2177. Looking at those numbers lends more credence to a consolidation period for the next two months. While doing the daily analysis this morning, I also noticed that the Performance Ranking (PR) of a lot of funds had significantly changed from yesterday. The PR is a weighted average of the fund’s performance over the last 1, 3, 6 and 12 months. I then sort those PR’s to determine which funds are performing best, which drives in part allocation decisions. What was significant was that on 11 June (3 month return) the S&P 500 was down almost 6% that day. I then looked back to 11 March (6 month return) and the S&P 500 lost almost 5%. On the next three days, it was down 10%, up 9%, and then down another 12%. This was right in the middle of the fastest bear market decrease in history. Then, from a technical perspective, we also saw the S&P 500, NASDAQ 100 and Russell 2000 all slip below their 50 day Moving Averages (MA) at some point this week. So when was the last time that happened? On 21 February of this year the S&P 500 closed above the 50 day MA standing at 3337. The next day it closed below initiating that steep and volatile March sell off I just mentioned. So, at first glance this week did not have market moving headlines, but there sure was a lot to digest once we started to peel the onion back. Going back to the first sentence, the S&P 500 closed the week at 3340. The S&P 500 stood at 3337 the last time it crossed below its 50 day MA. And finally, but not mentioned in the PR discussion, one month ago on 11 August the S&P 500 closed at 3333. It’s kind of scary, or is it coincidence, that all three are so tightly bunched? Which leads me back to my consolidation synopsis of seeing a tight range in the markets over the next two months. For TSP TIPS, we’re recommending the following reallocation during this uncertain time.
Week Ending 11 September 2020
The markets had a second week of losses with the S&P 500 closing the week at 3340. Given that we had five straight weeks of gains before that, it is not unusual for the markets to consolidate some before their next move. But what is that next move and when will it occur? That said, markets usually consolidate during times of uncertainty, and we sure have seen that. We have the uncertainty of COVID, vaccines, school openings, sports, and last but not least, the upcoming election. When these circumstances of uncertainty come up, I do like to look back at the “last time” to get a perspective. What comes first to mind is the election, and on 11 September 2016 the S&P 500 was 2127. On election day, 8 November 2016, the S&P 500 closed at 2139. During that time, the S&P was in a tight “consolidated’ range between 2085 and 2177. Looking at those numbers lends more credence to a consolidation period for the next two months. While doing the daily analysis this morning, I also noticed that the Performance Ranking (PR) of a lot of funds had significantly changed from yesterday. The PR is a weighted average of the fund’s performance over the last 1, 3, 6 and 12 months. I then sort those PR’s to determine which funds are performing best, which drives in part allocation decisions. What was significant was that on 11 June (3 month return) the S&P 500 was down almost 6% that day. I then looked back to 11 March (6 month return) and the S&P 500 lost almost 5%. On the next three days, it was down 10%, up 9%, and then down another 12%. This was right in the middle of the fastest bear market decrease in history. Then, from a technical perspective, we also saw the S&P 500, NASDAQ 100 and Russell 2000 all slip below their 50 day Moving Averages (MA) at some point this week. So when was the last time that happened? On 21 February of this year the S&P 500 closed above the 50 day MA standing at 3337. The next day it closed below initiating that steep and volatile March sell off I just mentioned. So, at first glance this week did not have market moving headlines, but there sure was a lot to digest once we started to peel the onion back. Going back to the first sentence, the S&P 500 closed the week at 3340. The S&P 500 stood at 3337 the last time it crossed below its 50 day MA. And finally, but not mentioned in the PR discussion, one month ago on 11 August the S&P 500 closed at 3333. It’s kind of scary, or is it coincidence, that all three are so tightly bunched? Which leads me back to my consolidation synopsis of seeing a tight range in the markets over the next two months. For TSP TIPS, we’re recommending the following reallocation during this uncertain time.