We are finally seeing the small pull-back or “correction” in the broad markets that we had been expecting since the year began. So far, the S&P 500 has had a fairly classic 5% pullback that started right as the month began and lasted until the 19th. What has to be considered now is: if that 5% pullback is all we’re going to get? or will the index, at some point, re-test that low over the next few days or even weeks?
Our Election Year seasonality data has been suggesting a somewhat flat market through May. If the market does continue this pullback over the next few weeks, that will be strikingly close to what history suggested. However, the up-side to this is that there is typically a run up again into the summer months (historically, anyway). As of right now, we can see this playing out with striking similarity to other Election Years.
The one market that continues to struggle is the Aggregate Bond Index (AGG ETF). As of today (April 24th, 2024), it is down -3.03% so far this year. This is important to note because so many “traditional” allocations insist that a balanced or “diversified” portfolio should contain a fairly large allocation to this asset class. And that, to me, is just silly (and possibly irresponsible).
Our Shadowridge Long-Term Trend indicator is back to positive after being negative for only a few days in mid-April. While the sell-off in the market was swift, so was the speed that money flow came out of the market. For now, that looks to have stabilized. But now the question is, was that the entire pullback or is there more in the near future? I’m leaning towards the latter.
Our Mid-Term Cycle is negative, but recovering quickly, after an impressively large negative reading. This is a chart I’ll be sharing at our next monthly webinar, so be sure to tune in if you want to see it visually.
As of Wednesday night (April 24th, 2024), our Shadowridge Dashboard showed Positive to Negative market sectors as 4 to 7. What I’m not loving is that the few positive sectors are all generally considered the “defensive” sectors: Financials, Consumer Staples, and Utilities. Energy is also positive, but it tends to live on its own planet, so I wouldn’t consider it either defense or offense.
This month’s chart(s) are a new addition to our “Shadowridge Dashboard.” They show 10 different portions of the bond market by using indexes created by Rob Bernstein of RGB Capital Group. We have built on Rob’s work and created an at-a-glance way to understand how these 10 bond sectors are behaving at any given time. Simply, trends are shown in green (up) or red (down).
The second chart (the meters) breaks these 10 bond sectors down into 2 separate categories: Bonds that are economically sensitive and Bonds that are Interest Rate sensitive. We hope this data gives us deeper insights into what parts of the bond market are working and which ones to avoid.
Current status of the 10 RGB Bond Segments as of Wednesday, April 24th, 2024 (Source: ShadowridgeData.com)
As I mentioned earlier, the Bond Indexes (both the Aggregate and the 10-year Treasury) remain negative Year-to-Date in 2024. These two primary indexes should be an offset to the broad stock markets’ correction, but instead, they have continued to struggle. The bright spot (and the sector we’ve owned for several months) is the Floating Rate or Bank Loan bonds. They are on the Economic Sensitive side and the only area that remained positive (green) throughout the sell-off so far in April.
Bottom Line: we went on the defensive fairly quickly in early April to side-step much of the pullback we saw this month, with the hope of preserving the gains made so far this year. We remain on the defense until we see, at very least, strength in the usual market leaders (Technology and Consumer Discretionary sectors). Or when the majority of broad indexes can regain their positive trends. Right now, they are teetering on the edge, so we are opting to “wait and see” and play it safe. We’re well-positioned to get more aggressive if the positive market trend can continue into the summer (as Election Year Seasonality would suggest).
Stay safe out there!
1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.