Since the end of April, the S&P5001 has been in a tight range and as of this writing, it is sitting almost exactly where it was a month ago. However, there are several factors that are looking more positive than we’ve seen in a while – and it seems possible we could get another move up from here. Of course, the market could remain choppy even if it moves higher (certainly more so than we saw in 2020).
Last month we ended with all 11 sectors being positive as of the newsletter writing. But that lasted only a day before declining again. So, we didn’t get the move up we had hoped for. But at that time, other factors, like relative strength, weren’t looking as good as they are now.
As of Thursday night, our Shadowridge Dashboard is showing Positive to Negative sectors as 8 to 3 and that has been improving. Also, most major indexes are showing positive traits, with the NASDAQ still lagging the bunch. Our Mid-Term Cycle indicator went back to positive earlier this week (just like it did at the end of April), so again we’ll remain optimistic that this move up can stay in effect longer than the 12-ish day runs we are currently getting.
Getting back to relative strength, the NASDAQ is on the cusp of retaining its dominance over the S&P 500 (by our metrics), which generally corresponds with a strong market. That and the Growth/Value ratio leaning towards the Growth side would also signal possible strength. But for now, Value and the S&P 500 still want to lead. So, at the moment, we’ve been leaning our investment holdings more into the S&P500.
This month’s chart might be what is most at the forefront of my mind (and many of us at Shadowridge). I’ve brought it up during our monthly webinars on several occasions. It’s the Shiller PE Ratio (or sometimes referred to as the CAPE – Cyclically Adjusted Price Earnings ratio). What makes this an important data point is that the current value of 37.26 is the 2nd highest Price to Earnings Ratio in the past 150 years. The only time we saw a higher over-valuation was in 2000 during the Tech bubble, and we know how that ended. And that has us thinking of other bubbles that might be setting up to pop.
Bonds – have continued to attempt a comeback, but the Aggregate Bond Index is still just trying to get back to even on the year. The Aggregate Bond Index AGG is now at -2.32%. High Yield bonds remain the bright spot, being up around 1.30% so far in 2021 (FastTrack Data). As long as High Yield bonds remain stable, it is often believed to be a sign that the stock market can have room to continue to move upwards—another factor giving us some possible positive vibes for June.
All that being said, we’ve been leaning into equities (stock market holdings) over the past couple of weeks with cautious optimism. Of course, if that changes, we’ll be quick to protect, as that is always our top priority. But for now, let’s roll!
Don’t forget to catch our monthly webinar version of this newsletter, where I dive deeper into what I mention in the newsletter commentary. For me, nothing tells the story as much as visuals, so that is how I prefer to dig into what we’re doing with investment decisions. After me, Will Hepburn will be talking about the nature of Crypto-currencies, and Laura Redfern will be discussing considerations when couples merge money. We hope you can join us – Wednesday, June 9th at noon Central time.
You can sign up for the webinar here. We look forward to seeing you 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.