This One Day Wonder Raised Our Caution Flag Immediately

CAMS Weekly View from the Corner – Week ending 9/11/2020

September 14, 2020

Very interestingly, late last week we observed behaviors that may be offering the much broader stock market may want to kick into gear.  This is a very early observation that can disappear as quickly as it appeared. Weekly View Excerpt – August 31, 2020 Edition

In recent editions of these Weekly Views we have been focused on the general health of the stock market via its lack of broad participation.  Stated more specifically, our on-going observation point has been that a select list of companies has been the primary driver of stock market gains – particularly in the summer months. Historically speaking, this can go on far longer than most would believe and yet, as a general market observation, such a backdrop does not reflect good overall health in light of such characteristics. In depicting this disparity we have been highlighting the year-to-date returns chart for the weighted and equal weighted S&P 500 indices. The weighted version, with select companies impacting the performance more than others, has handily outperformed the equal weighted version which by its construction places all 500 companies on an equal weighting resulting in them having the same impact on the performance. Our header excerpt at the top of this edition takes us right where we left off in our previous edition.  In that Weekly View we were sharing how the market was showing some signs of wanting to broaden out and to kick into gear. It did just that – for about a day and then failed – not good. With this we immediately raised our caution flag and began to move toward safer waters with our various portfolios.
Click For Larger View:  http://schrts.co/ubiSrTyH The above chart depicts the year-to-date performance of the weighted S&P 500 – top black line – and the equal weighted S&P 500 – lower blue line. The far right portion of the chart reflects their respective behavior in August and early September.  We have been noting how the equal weighted S&P 500 (lower blue line) has been unable to perform in August while the weighted version (top black line) propelled higher. Our one day wonder viewpoint is identified by the red horizontal red arrow on the lower blue line.  Here the equal weighted S&P 500 put on notable strength and appeared it was ready to kick into gear to join in on the strength of the weighted S&P 500. That strength lasted for one day and disappeared quickly!  Follow-on days offered more weakness which is reflected by the red highlighting lines. There is nothing like blatant failure to wake up market participants to a potential new market backdrop – a backdrop that may be offering a more negative forward view. This failure of strength should not be happening if all is right with the general stock market backdrop.  Collective market participants turned tail in a hurry.  With this behavior in mind collective market participants are offering caution, if not concern, so we have raised our cautionary flag accordingly. I wish you well… Ken Reinhart Director, Market Research & Portfolio Analysis Portfolio Manager, CAMS Spectrum Portfolio Footnote: H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors. This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.