Breadth and Trend Backdrop Remain Bullish For Stocks
Identify the Environment, Follow the Trend, Stay Focused On What Matters
Subscriber note #1: We have published updates to our Dynamic Cyclical and Tactical Opportunity Portfolios. We are rotating into new leadership areas, but our overall exposure to equities and commodities is little changed.
Next week will mark 6 months since the December surge in new 20-day highs on the S&P 500 (Ned Davis Research attributes this particular breadth thrust to Jeff deGraaf). The S&P 500 is up 14% since that signal.
Breadth Thrust regimes extend for a year after the most recent breadth thrust and remain one of the most important market environment indicators in our work. All of the net gains in the S&P 500 over the past quarter century have come during the 60% of the time that a breadth thrust regime has been intact.
The bond yield environment is also worth monitoring. We have entered a new long-term trend environment for yields (with up-trends being more persistent than most of us have experienced thus far in our careers). But for now, corporate bond yields are lower than they were 6 months ago and that provides a bullish liquidity environment for stocks.
There are other challenges as well: Central Banks remain unfriendly despite a widely anticipated pivot and the trend in earnings revisions has rolled over.
But overall, there is little evidence of financial stress and the environment is favorable to stocks.
Within the equity market itself, Bull Market Behavior is persisting and our checklist suggests the trends remain strong (subscribers can read the entire update here).
All that being said, seeing more new lows than new highs on the NYSE + NASDAQ this week doesn't exactly put a smile on my face. Nor does the percentage of ACWI markets above their 50-day averages dropping from the mid-70's to the mid-50's. But as long as these are short-lived, day-to-day developments, the risks to the market are likely minimal.
Subscriber note #2: I will be away from my desk for the next two weeks. My wife & I are celebrating our 25th wedding anniversary with a road-trip to the West Coast.
We’ve have enjoyed the adventure thus far and the three wonderful souls who have joined us along the way. I could not be more excited to see what lies ahead in the next 25 years.