October 2017 Market Commentary

Contrary to many historic stats and expectations of the stock market during September and October, we haven’t seen the “scary” fall season we’d often anticipate. Even with the minor sell-off we saw on Wednesday this week, none of the major trend lines that we follow were broken. For now, we don’t expect to see the market shift into any major correction. That’s not to say that we couldn’t see a few negative days here and there.

Low volatility (as measured by the VIX volatility index) continues, and the NYSE Advance-Decline marches onward! The chart below shows that the cumulative NYSE A/D line has continued to push upward, despite the prevailing sentiment (by some) that we should be much worse off than we are. Furthermore, we see no signs yet of institutional investors bailing on this market… for now.

 

One Year Chart of the NYSE Advance-Decline Cumulative Average (Stockcharts.com)

 

V32 – our indicator turned investment strategy continues to favor Large Cap Growth for the fourth quarter through the end of the year.  That doesn’t mean there can’t be some unexpected turbulence along the way.  But our expectation of positive market movement remains through the end of 2017.

International and Emerging Markets – appear to be stronger than we’ve seen in many years.  It’s been so long since we’ve seen these areas in a top asset class that we nearly forgot they existed.  From 2004 to 2009, they often ranked high against US stock market segment, but since then, for whatever reason, they hadn’t done much.  However, the tides may be turning in this arena, and we are watching that opportunity closely.  Japan, specifically, seems to be breaking out of its decades-long rut that has been holding them back.

Overall, we really thought at this point of the year we’d be ready to be in a more defensive position.  But that’s just not the case.  Based on metrics that we follow on a daily basis, we’ve seen little reason not to be fully invested.  It would be great to see this market strength remain through the end of the year and into 2018. As Denis Waitley said: “Expect the best, plan for the worst, and prepare to be surprised.”  That’s what we do every day!  Onwards…


2 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.