A Key Relationship for the Whole of 2020

CAMS Weekly View from the Corner – Week ending 9/25/2020

September 28, 2020

In recent editions we have been sharing stock market behaviors that have offered a cautionary view from collective market participants.  With this we have offered a caution flag in respect to the stock market.
 
In said editions we had focused on stock market behavior only.  Another way to assess the general tone of collective market participants is to look at what is known as inter-market analysis.
 
Interestingly, scanning our Weekly View archives, back in February we offered this same approach at a point when this inter-market view continued to look more questionable.
 
The obvious curiosity was simply if the stock market was truly healthy (at that time) then why were we seeing notable and growing out-performance by some “flight-to-safety” type investments that were outside of the stock market.
 
As 2020 has unfolded those previous observations remain in effect to current day.

Click For larger View:  http://schrts.co/QYkCJEZr

The above chart depicts the year-to-date returns for opposite investment areas.  The black line (bottom line) is the S&P 500 Index while the blue line (top line) represents long-term U.S. Treasury bonds.
 
Per the chart, we see beginning 2020 long-term Treasuries had a tone of leadership compared to the stock market.  This then built momentum in latter January as stocks fell back to 0% return for the year while long-term Treasuries went even higher.
 
Looking at the chart in its wholeness, we can see Long-term Treasuries has never relinquished its commanding out-performance as 2020 unfolded.  This “risk off” safe haven investment out-performance sums up the wholeness of 2020.
 
In the previous couple of months, via our red lines and arrows, we can see quite succinctly how these two are willing to trend in opposite directions if “risk ON” becomes favorable from collective market participants.
 
Through the summer months, when the stock market attempted some positive trend strength, the Treasuries began an attempt at a simultaneous downtrend but were halted as the stock market halted its attempt at trend. 
 
All told, via the above, both for the wholeness of 2020 as well as recent weeks, this inter-market behavior offers a cautionary stance. 
 
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.