Stocks opened flat on Tuesday but the bulls quickly took over once again and we saw a broad rally into the close, with fairly strong breadth pushing most of the indices higher on the first trading day of September. Volume was lighter than average and typical of this time of year, and it may get lighter as the week goes on, barring any major news events. The Dow gains 216-points with the Nasdaq leading the way once again. Bonds rallied and the I fund lagged after a rally in the dollar.
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We're in a pre-holiday week where volume should start to dip and traders are more likely to take time off leaving only investors and 401K / pension inflows, and that's why the bulls tend to have an advantage around the holidays. The market is getting frothy, but the seasonality gives the bulls a modest advantage this week. Next week, that will change.
Plus, the market action is very bullish right now, and there's a lot going on between the potential next round of stimulus, the 0% interest rates, the fall and rebound of the economy, the election, etc. With the positive seasonality during this pre-holiday week, it's a good time to be in stocks. But...
... taking a more macro view, I read the new commentary from John Hussman, of Hussman Funds, and it's called "Yikes." He tends to be very cautious, but very valuation oriented, and he is now saying this about the next 12 years:
"Our estimate of average annual nominal total returns for a conventional passive portfolio mix invested 60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills has declined to -0.95%, easily the lowest level in history, including the extreme low associated with the 1929 market peak."
It's tough to read this chart but you can follow the link below it for the full article. Basically he saying valuations tend to dictate the forward market returns, and based on his data, the estimated gain from the allocation he mentioned above, 60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills, is a loss of nearly 1% annually until 2032 (12 years out.)
Source: https://www.hussmanfunds.com/comment/mc200901/
Twelve years ago we were just getting started in the financial crisis and it was just before the worst of that bear market kicked in during the fall of 2008. It looks like that same allocation expected a 12 year annualized return of somewhere near 7% from late 2008 through today. Again, that was before the worst of the losses started in 2008.
7% annualized for 12 years would be a return of 125%. The S&P 500 closed on August 31, 2008 at 1283. It closed 12 years later on August 31, 2020 at 3500. That's a gain of 173% for those 12 years, which is more than the 125% estimated, but it was at +125% when the S&P 500 was 2887, and we were just there in May. Pretty close.
Keeping it brief this week...
The S&P 500 (C-fund) keeps on keeping on, but the trading channels are getting narrower and narrower so something is likely going to give this month. The question is, how much more can the bulls squeeze out of this rally until then?
The DWCPF (S-fund) made a new high and closed above 1600 for the first time ever. You can see that the pattern in recent months has been a push higher, followed by a couple of weeks of consolidation, then another push higher, etc. It is near the top of the large trading channel, but that resistance line is also moving up.
The EFA (I-fund) lagged on Tuesday as we got a decent positive reversal rally from the dollar. That 65 - 66 area has been a tough nut to crack so far.
The Dow Transportation Index fell below recent support on Monday. It bounced back strongly on Tuesday but remains below that support line - although that angle of incline was not very sustainable. The question is, what angle will be sustainable?
BND (F-fund) was down in early trading but popped higher on Tuesday by the close, and is now flirting with a potential breakout to the up side from a bearish flag, which would be a surprise, but that's what's happening. We did get a strong ISM economic report, which you would think would send yields higher (and bonds down) and that was likely why bonds opened lower, but for some reason yields went back down and bond prices rallied after the weak open.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
[TABLE="align: center"]
[TR]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[TD][/TD]
[TD="align: center"]
[/TR]
[/TABLE]
We're in a pre-holiday week where volume should start to dip and traders are more likely to take time off leaving only investors and 401K / pension inflows, and that's why the bulls tend to have an advantage around the holidays. The market is getting frothy, but the seasonality gives the bulls a modest advantage this week. Next week, that will change.
Plus, the market action is very bullish right now, and there's a lot going on between the potential next round of stimulus, the 0% interest rates, the fall and rebound of the economy, the election, etc. With the positive seasonality during this pre-holiday week, it's a good time to be in stocks. But...
... taking a more macro view, I read the new commentary from John Hussman, of Hussman Funds, and it's called "Yikes." He tends to be very cautious, but very valuation oriented, and he is now saying this about the next 12 years:
"Our estimate of average annual nominal total returns for a conventional passive portfolio mix invested 60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills has declined to -0.95%, easily the lowest level in history, including the extreme low associated with the 1929 market peak."
It's tough to read this chart but you can follow the link below it for the full article. Basically he saying valuations tend to dictate the forward market returns, and based on his data, the estimated gain from the allocation he mentioned above, 60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills, is a loss of nearly 1% annually until 2032 (12 years out.)
Source: https://www.hussmanfunds.com/comment/mc200901/
Twelve years ago we were just getting started in the financial crisis and it was just before the worst of that bear market kicked in during the fall of 2008. It looks like that same allocation expected a 12 year annualized return of somewhere near 7% from late 2008 through today. Again, that was before the worst of the losses started in 2008.
7% annualized for 12 years would be a return of 125%. The S&P 500 closed on August 31, 2008 at 1283. It closed 12 years later on August 31, 2020 at 3500. That's a gain of 173% for those 12 years, which is more than the 125% estimated, but it was at +125% when the S&P 500 was 2887, and we were just there in May. Pretty close.
Keeping it brief this week...
The S&P 500 (C-fund) keeps on keeping on, but the trading channels are getting narrower and narrower so something is likely going to give this month. The question is, how much more can the bulls squeeze out of this rally until then?
The DWCPF (S-fund) made a new high and closed above 1600 for the first time ever. You can see that the pattern in recent months has been a push higher, followed by a couple of weeks of consolidation, then another push higher, etc. It is near the top of the large trading channel, but that resistance line is also moving up.
The EFA (I-fund) lagged on Tuesday as we got a decent positive reversal rally from the dollar. That 65 - 66 area has been a tough nut to crack so far.
The Dow Transportation Index fell below recent support on Monday. It bounced back strongly on Tuesday but remains below that support line - although that angle of incline was not very sustainable. The question is, what angle will be sustainable?
BND (F-fund) was down in early trading but popped higher on Tuesday by the close, and is now flirting with a potential breakout to the up side from a bearish flag, which would be a surprise, but that's what's happening. We did get a strong ISM economic report, which you would think would send yields higher (and bonds down) and that was likely why bonds opened lower, but for some reason yields went back down and bond prices rallied after the weak open.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
