Written by Lance Roberts, Clarity Financial
Data Analysis Of The Market and Sectors For Traders
As noted last week, the “biggest rally in history” failed this past week, confirming a downtrend from the February highs.
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S&P 500 Tear Sheet
Performance Analysis
Technical Composite
Note: The technical gauge bounced from the lowest level since both the “Dot.com” and “Financial Crisis.” However, note the gauge bottoms BEFORE the market bottoms. In 2002, lows were retested. In 2008, there was an additional 22% decline in early 2009.
ETF Model Relative Performance Analysis
Sector and Market Analysis:
Be sure and catch our updates on Major Markets (Monday) and Major Sectors (Tuesday) with updated buy/stop/sell levels
Sector-by-Sector
The bounce from last week, as expected, failed.
There are no changes to our sector recommendations from last week.
Improving – Discretionary (XLY), and Real Estate (XLRE)
We previously reduced our weightings to Real Estate and liquidated Discretionary entirely over concerns of the virus and impact on the economy. No change this week. We are getting more interested in REITs again, but are going to select individual holdings versus the ETF due to leverage concerns in the REITs.
Discretionary is going to remain under pressure due to people being unable to go out and shop. This sector will eventually get a bid, so we are watching it, but we need to see an eventual end to the isolation of consumers.
Current Positions: No Positions
Outperforming – Technology (XLK), Communications (XLC), Staples (XLP), Healthcare (XLV), and Utilities (XLU)
Two weeks ago, we shifted exposures in portfolios and added to our Technology and Communications sectors, bringing them up to weight. We remain long sectors which are currently outperforming the S&P 500 on a relative basis and have less “virus” exposure.
Current Positions: XLK, XLC, 1/2 weight XLP, XLV
Weakening – None
No sectors in this quadrant.
Current Position: None
Lagging – Industrials (XLI), Financials (XLF), Materials (XLB), and Energy (XLE)
No change from last week, with the exception that performance continued to be worse than the overall market.
These sectors are THE most sensitive to Fed actions (XLF) and the shutdown of the economy. We eliminated all holdings in late February and early March.
Current Position: None
Market By Market
Small-Cap (SLY) and Mid Cap (MDY) – Five weeks ago, we sold all small-cap and mid-cap exposure over concerns of the impact of the coronavirus. We remain out of these sectors for now.
Current Position: None
Emerging, International (EEM) & Total International Markets (EFA)
Same as small-cap and mid-cap. Given the spread of the virus and the impact on the global supply chain.
Current Position: None
S&P 500 Index (Core Holding) – Given the overall uncertainty of the broad market, we previously closed out our long-term core holdings. We will re-add a core once we see a bottom in the market has formed.
Current Position: None
Gold (GLD) – We added a small position in GDX recently, and increased our position in IAU last week. With the Fed going crazy with liquidity, this will be good for gold long-term, so we continue to add to our holdings on corrections.
Current Position: 1/4th weightGDX, 1/2 weight IAU
Bonds (TLT) –
Bonds have rallied as the Fed has become THE “buyer” of bonds on both a “first” and “last” resort. Simply, “bonds will not be allowed to default,” as the Fed will guarantee payments to creditors. We have now reduced our total bond exposure to 20% of the portfolio from 40% since we are only carrying 10% equity currently. (Rebalanced our hedge.)
Current Positions: SHY, IEF, BIL
Sector / Market Recommendations
The table below shows thoughts on specific actions related to the current market environment.
These are not recommendations or solicitations to take any action. This is for informational purposes only related to market extremes and contrarian positioning within portfolios. Use at your own risk and peril.
Portfolio/Client Update:
As noted last week, the “biggest rally in history” failed this past week, confirming a downtrend from the February highs.
We are just now starting to see some of the economic damage coming to the forefront:
- 10 million jobless claims
- 700k unemployment – this will surge into the millions next month.
- Confidence on the decline (bad for GDP and stocks)
We are about to see terrible numbers across the board with employment and economic growth hitting numbers not seen since the Great Depression.
The impact to earnings will likely be larger than currently expected which will weigh on markets in the months ahead.
We have added hedges to our portfolios last week to “neutralize” our long-equity book. We are down to our core “long-term” equities that we will begin to add to opportunistically as the market bottoms and begins to recover.
Importantly, we will NOT buy the bottom. We are going to wait to clearly see the bottom has been put in, then we will aggressively begin to add exposure. At such a point, risk and reward will be clearly in our favor.
We continue to remain very defensive, and are in an excellent position with plenty of cash, reduced bond holdings, and minimal equity exposure in companies we want to own for the next 10-years. Just remain patient with us as we await the right opportunity build holdings with both stable values, and higher yields.
Please don’t hesitate to contact us if you have any questions, or concerns.
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