After an impressively and unexpectedly bad Q4 of 2018, the stock market rebound (specifically the S&P 500¹) is finally getting close to where it stopped and rolled over in late September.  However, not all areas are participating.  Small Cap stocks (Russell 2000) still have a while to go before getting back to their highs.  In “normal” market conditions, when the environment is good, these small-cap stocks usually lead the market higher.  We’re just not seeing that yet. 

From a relative strength view, we’re finding the most strength in the areas of Technology, Consumer Discretionary, and oddly, Utilities.  I say “oddly” because the Utilities sector is often where money moves to when things aren’t going so well in the economy, which is not the case right now.  Recent GDP numbers suggest the “US economy grew by 3.2% in Q1 of this year, topping expectations” (cnbc.com).

The NYSE Advance-Decline Cumulative Average has been steadily moving up for most of this year so far.  Our take is that this gives us a feel for how much participation across the entire stock market is causing the overall movement.  Another positive in our view.

Also, the High Yield Bond index has been strong this year.  We often find that High Yield bonds (sometimes referred to as “junk” bonds) can be a good indication of investor sentiment regarding the health of the economy.  This month’s chart shows the movement of the HYG ETF (iShares Hi-Yield Corp Bond Fund) above the S&P 500.  They tend to move together, and in our view, can give confirmation of a directional trend of the overall market and economy.

Our V3³ Indicator is in “Growth” mode for the second quarter of 2019.  So far, it has been back on the right side of the market for this part of the year. 

Bonds – The Aggregate Bond index (AGG) continues to be strong this year, currently up 2.97% YTD (ishares.com).  That is very near where it was at the end of last month.  We’re still watching interest rates for hints of the next economic changes.  But as of right now, there is not much to report.

On a fun note, last month I quoted Tony Dwyer in regard to his work on understanding the Yield Curve and how it can forecast recessions.  While at the CMT Symposium in New York City earlier this month, I unexpectedly sat next to him during a breakout session.  It continues to amaze me how, since I’ve left the Brokerage world, many of the people I once looked up to have become my peers.  Next, I’m heading to Scottsdale, AZ for the NAAIM (National Association of Active Investment Managers) conference for more of that level of interaction.  I hope to have more insights to share when I get back!

Hope you are having a great spring!

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.

3 V3 is a proprietary indicator developed by Shadowridge Asset Management, LLC. Its objective is to take several market sentiment factors and project how to view US stock market investment in the following quarter: for Safety, for Balance, or for Growth.