Normally, we find that this time of year can be a bit dodgy in the stock market, but so far the 3rd quarter has been relatively quiet and calm. However, we still have to get through September. According to the Stock Trader’s Almanac, the S&P 500 ends the month of September in positive territory 41.9% of the time (Stock Traders Almanac). So, the odds don’t favor being too aggressive (or getting more aggressive) at this time of year.
The Yield Curve still has the potential for an “inversion” sometime later this year. We continue to keep an eye on this important factor for hints of the next recession. As of right now, we expect that it may not be here until the second half of 2019. And while it feels like we’ve been expecting a recession for a few years now, it just hasn’t come to pass.
This month we’re going to look at both the Large Cap Growth and Large Cap Value Index ETF’s against the S&P 500 over the past two years. The charts below show the difference between these two sides of the market. We believe this demonstrates why we’re not fans of traditional diversification, which says you should always own a mix of both. Since the beginning of 2017, we’ve favored the Large Cap Growth side (right chart) and have avoided Large Cap Value (left chart) in our models, because that’s what the trends have shown us. And if these trends were to change, we will shift to wherever the strength is against the S&P 5001.
Two Year Ratio of the Large Growth Index ETF (IVE) vs the S&P 500 (SPY) with a 100 Day Moving Average (iShares ETFs)
Two Year Ratio of the Large Value Index ETF (IVE) vs the S&P 500 (SPY) with a 100 Day Moving Average (iShares ETFs)
Our V33 Indicator shifted back to “Growth” mode at the beginning of the third quarter of 2018. So far this quarter it appears to be correct. Pair this with a focus on Large Cap Growth and it’s been a solid combination since the first of July.
Bonds – The Aggregate Bond index (AGG) is still negative for the year right at -1% (ishares.com). Even with the few bright spots, such as in bank loans, short-term corporate bonds, and money market funds, bonds have been a tough boat to steer this year. That being said, our core bond model has stayed stronger than the index all year. We remain on the lookout for opportunities in this area.
We hope everyone has a great and safe Labor Day weekend!!
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.