Barometer Reading Change ... Overvalue to Fair Value
As the close of first week of September there has been a barometer reading change for the S&P 500 Index. One, the earnings feed within the barometer has been reset from the summer period to the fall period; and. two, with the market pull back with an Index reading decline to 2872 the barometer now scores the Index as being fair value as of 9/7/18 at a reading of 152. At the close of August the barometer's reading was 143. As you can see there has been some good range movement within the barometer during the week. For me, to put new money to work since I am currently invested close to what my equity weighting matrix suggest (set to my risk tolerance) I will need to see a higher barometer reading (more than fair value) before commiting new investment money.
Comments
At the market close today and for the week ending 09/14/2018 Old_Skeets market barometer scored the S&P 500 Index with a reading of 147 which bubbles towards the lower range of fair value. For the week the Index gained 33 points resulting in a 1.15% gain by my math. A higher barometer reading indicates there is more investment value in the Index over a lower reading. During the week the barometer declined by 5 points.
As of the market close for the week ending 09/21/2018 Old_Skeet's market barometer (which follows the S&P 500 Index) bubbled with a reading of 144 which scores the Index as now being overvalued. For the week the Index gained 24 points, rising to a reading of 2929, resulting in a 0.82% gain. I'm thinking now might be a good time for me to trim a little from my equity allocation. This follows one of my investment axioms. "Buy on market Weakness ... and, Sell on market Strength." Remember a higher barometer reading indicates there is more investment value in the Index over a lower reading. Over the past couple of weeks the barometer reading has been falling and has moved from a high of 152 (fair value) down to 144 (overvalue). With this, the barometer has now declined a total of 8 points during the month.
I found this chart an interesting commentary on present valuations with only US Large Cap companies being overvalued (YTD vs historical returns) while all others being under valued (YTD vs historical returns).
Weekly Recap
For the week ending September 28, 2018 Old_Skeet's market barometer, which follows the S&P 500 Index, closed the week with a reading of 147 (up 3 points from the previous week) and moved back into fair value on the barometer's scale. For the week the Index lost 15 points or -0.5%.
Monthly Recap
For the month the Index moved from a reading of 2901 and closed the month at 2914 for a gain of of about 0.45%. The high reading for the month, by my notes, was 2929.
For the month the barometer moved from a reading of 143 (overvalued) to 147 (which is towards the low range of fair value) with a high reading taking palce the week ending of 9/7/18 at 152 (which is towards the high range for fair value). Remember, a higher barometer reading indicates more investment value in the Index over a lower reading.
The US 10 Yr had some good interest rate movement for the month moving from 2.86% upwards toward 3.1% and closing the month at 3.06%. The US 2 Yr also had some good interest rate movement moving from 2.63% upwards to 2.80%. The 2/10 yield spread actually gained a little moving from 0.23% to 0.26%. An inverted yield cure is said to take place when the yield of the US 2 Yr is greater then the yield of the US 10 Yr. When this happens, some say, this is a sign that this condition could indicate a recession "might" be on the horizon and many times it has been.
Short Interest for the Index opened the month at 2.5 days to cover and moved upward to 2.6 days to cover before pulling back and closing the month at 2.5 days to cover.
As stated above, in my opening for this thread, I'll need a higher barometer reading before buying in the equity area of my portfolio; however, now that the US 10 Yr is yielding 3%, or better, I have begun to add to some of my fixed income funds. My current asset allocations, by area, for my portfolio follow. They are cash area 14.6% (target 15%) ... income area 33.9% (target 35%) ... growth & income area 34.7% (target 35%) ... and, growth area 16.8% (target 15%). Recently, I trimmed form the growth area and moved the sale proceeds to the income area. Most of my gains thus far this year have taken place within the growth area of my portfolio and I felt it was time to book some of these gains.
October could become interesting as we approach midterm elections which take place on November 6th.
Thanks for stopping by and reading.
Wishing all ... "Good Investing."
Old_Skeet
For the week ending October 5, 2018 Old_Skeet's market barometer, which follows the S&P 500 Index, closed the week with a reading of 151 and bubbled in the middle of fair value on the barometer's scale. Short interest for the week remained at 2.5 days to cover while the 2/10 US Treasury yield curve spread widend from last weeks range of 0.26 points to 0.34 points with this week's close. For the week the 500 Index lost about one percent moving from a valuation of 2915 down to 2885.
When the US 10Yr reaches a yield of 3.25% I'll do a little more buying in my fixed income sleeve. This buying is being done to keep the portfolio's asset allocations within their established ranges and is an on going rebalance process of sorts as my goals are to raise my fixed income percentage within my portfolio by about one percent per quarter over the next year, or so. This rebalance is driven from both a market strategy perspective along with age based rebalance goal of reducing my allocation to equities and increasing my allocation to fixed income as I age.
Thanks for stopping by and reading.
I wish all good investing.
Old_Skeet
Thanks for your time, Derf
Since, I have a goal to incease my fixed income allocation within my portfolio requires me to do some buying. So, to make headway on my goal of increasing the amount of fixed income held, as interest rates rise and bond valuations fall, I have decided to move at a measured pace and follow the interest rate movement of the US 10 yr. As its yield moves upward in a quarter of point steps I do a little fixed income buying to offest the decline in their valuation and to make some headway towards my goal of increasing the amont of fixed income held also requires me to do some buying.
This is a simple way to position cost average the fixed income side of my portfolio and at a measured pace as interest rates rise while at the same time inceasing my fixed income asset allocation. Granted some investors are reducing their fixed income positions in this rising interest rate environment; but, I'm now buying since the US 10 yr yield is above 3%. As you may recall I reduced my fixed income allocation about a year, or so, ago when the US 10 yr had a much lower yield and interest rates began to rise. I'm now thinking over the next year, or so, the US 10 yr will have a yield of around 4%.
I hope this explains things from my perspective and provides a meaningful answer to you question.
Linked here:
https://wealthtrack.com/whats-the-biggest-risk-in-the-markets-today/
His biggest bear market fear is the fixed income space where investor continue to invest in an incrementally falling investment which you just describe as your buying strategy. He suggest to stay short (duration) in fix income and seek income elsewhere. Do you see income opportunities outside of fixed income such as equity dividend payers, REITs, or elsewhere. Do you buy his logic that fix income is susceptible to a bear market?
Old_Skeet's Sleeve Management System
Now being in retirement here is a brief description of my sleeve management system which I organized to better help manage the investments held within mine and my wife's portfolios. The master portfolio is comprised of two taxable investment accounts, two self directed retirement accounts, a health savings account plus two bank accounts. With this, I came up with four investment areas. They are a cash area which consist of two sleeves ... an investment cash sleeve and a demand cash sleeve. The next area is the income area which consist of two sleeves ... a fixed income sleeve and a hybrid income sleeve. Then there is the growth & income area which has more risk associated with it than the income area and it consist of four sleeves ... a global equity sleeve, a global hybrid sleeve, a domestic equity sleeve and a domestic hybrid sleeve. And, there is the growth area where the most risk in the portfolio is found and it consist of five slleves ... a global sleeve, a large/mid cap sleeve, a small/mid cap sleeve, a specialty/theme sleeve plus a special investment (spiff) sleeve. Each sleeve (in most cases) consist of three to nine funds with the size and weight of each sleeve can easily be adjusted, from time-to-time, by adjusting the number of funds held along with their amounts. By using the sleeve system I can get a better picutre of my overall investment landscape. I have found it beneficial to Xray each fund, each sleeve, each investment area, and the portfolio as a whole quarterly. My positions and sleeves can be adjusted from time-to-time as to how I might be reading the markets through using my market barometer and equity weighting matrix. The matrix is driven by the barometer. All my funds with the exception of those in my health savings account pay their distributions to the cash area of the portfolio. This automatically builds cash in the cash area to meet the portfolio's disbursements (when necessary) with the residual being left for new investment opportunity. Generally, in any one year I take no more than a sum equal to one half of my portfolio's five year average return. In this way principal builds over time. In addition, most buy/sell transactions settle from, or to, the cash area with some net asset exchanges between funds taking place.
Last revised: 09/28/2018 Master Portfolio
Here is how I have my asset allocation broken out in percent ranges, by area. My neutral allocation weighting are cash 15%, income 35%, growth & income 35% and growth & other assets 15%. I do an Instant Xray analysis of the portfolio quarterly and make asset weighting adjustments as I feel warranted based upon my assesment of the market, my risk tolerance, cash needs, etc. In addition, I have the portfolio set up in Morningstar's portfolio manager by sleeve and as a whole for easy monitoring plus I use brokerage account statements along with other Morningstar reports and the fund fact sheets to follow my investments.
CASH AREA (Weighting Range 10% to 20% with neutral being 15%)
Demand Cash Sleeve ... Cash Distribution Accrual & Future Investment Accrual
Investment Cash Sleeve ... Money Market Funds: (AMAXX, GBAXX & PCOXX), Savings Accounts & CD's
INCOME AREA (Weighting Range 30% to 40% with neutral being 35%)
Fixed Income Sleeve: BAICX, CTFAX, GIFAX, LBNDX, NEFZX & TSIAX
Hybrid Income Sleeve: APIUX, AZNAX, DIFAX, FISCX, FKINX, ISFAX, JNBAX, PCGAX & PGBAX
GROWTH & INCOME AREA (Weighting Range 30% to 40% with neutral being 35%)
Global Equity Sleeve: CWGIX, DEQAX & EADIX
Global Hybrid Sleeve: CAIBX, PMAIX & TIBAX
Domestic Equity Sleeve: ANCFX, FDSAX, SVAAX
Domestic Hybrid Sleeve: ABALX, AMECX, FBLAX, FRINX, HWIAX & LABFX
GROWTH AREA (Weighting Range 10% to 20% with neutral being 15%)
Global Sleeve: ANWPX, NEWFX & SMCWX
Large/Mid Cap Sleeve: AGTHX, AMCPX & SPECX
Small/Mid Cap Sleeve: AOFAX, NDVAX & PMDAX
Specialty & Theme Sleeve: LPEFX, PCLAX & PGUAX
Spiff Sleeve: No position engaged at this time.
I hope my response has provided a meaningful answer to your question.
Take care,
Old_Skeet
Bonds are of course tricky. Not just duration. But also credit quality, country and currency.
Stocks vrs. bonds? Would you rather swim with sharks or piranhas?
Thanks Ol’Skeet for continuing to share your views and positioning.
An example of a fund being moved from one sleeve to another was recently done when I moved NEWFX from my specialty theme sleeve to the global growth sleeve and sold FWAFX when NEWFX took its space within the global growth sleeve. Another example is pending and that is to move PMAIX from the global hybrid sleeve to the hybrid income sleeve and add GBLAX to the global hybrid sleeve. However, to do this would require me to sell one of the funds currently held in my hybrid income sleeve to create space for PMAIX to make the transfer. Still thinking on this one. Most likely I'll leave things as they are. PMAIX just might have too aggressive of an investment strategy for the hybrid income sleeve as it is very active with its positioning. This is one of the reasons I own it plus it kicks off a good income stream.
Thanks again for your questions.
With the S&P 500 Index declining to a reading of 2785 (range) as of market close 10/10/18 Old_Skeet's barometer has moved to a reading of 167 (oversold). Normally, I'd be putting some money to work in the equity area of my portfolio; but, not at this time for more than one reason. One, I'm thinking the FOMC has been a little too aggressive in their rate increase campaign. Two, mid term elections are coming in a few weeks. Three, the trade debacle with China (and others) has created unrest. Four, I'm thinking with earnings season soon to arrive earnings are going to have to surprise to the upside. And, I just do not think this is going to happen. With all of the above being stated since stocks have been richly priced I'm thinking that they are now finding a bubble more respective to their value. I'm also thinking there is more downside to come until we get through midterm elections.
As for me I'm letting my asset allocation work which is set to my risk tolerance. When I feel the dust has settled (from this market storm) and I can see how things have bubbled out ... Well, for now, I just watching big money deleverage. Hopefully, key investors are not too deeply margined and this selloff will be soon coming to an end. And, then again, it could continue as some investors will fail to meet margin calls.
Derf
Hello with the S&P 500 Index closing today at 2728 (down 2% for the day) puts Old_Skeet's Barometer produced, by its metrics, a reading of 174 scoring the Index as extremely oversold. At this time I am not putting any new money to work in my equity funds as there is a good possibility there is more downside to come. Earning Season is set to open tomorrow with some of the big banks scheduled to report. I'm thinking with the current FOMC's rate increase environment and the tariff debacle Corporate earnings will have to surprise to the upside to propel the market. In ther nearterm there are midterm elections looming that are also a distractor.
Old_Skeet's market barometer closed the week of October 12, 2018 with a reading of 168 indicating that the S&P 500 Index is extremely oversold. For the week the Index was down 4.1%. Short interest for the week closed at 2.2 days to cover while the yield on the US 10 Yr moved from a yield of 3.23% down to a yield of 3.16% where it closed the week.
Earning season opened today and will continue for the next few weeks, or so. It will be interesting to see how the Index moves through the coming weeks as Corporate earnings are reported. Since, I am at an age of 70+ I am in the process of doing an age based rebalance within my portfolio where I am trimming equities and raising my allocation to bonds. For now, I'm going to refrain from making a special investment "spiff" position that I would normally engage in during a stock market pullback.
My current simple asset allocation follows: 15% cash, 10% fixed income, 30% equity and 45% hybrid. Morningstar's Instant Xray bubbles my allocation at 18% cash, US stocks 34%, foreign stocks 17%, bonds 26% and other 5%. As you can see my simple allocation bubbles much differently than it does in Xray. Going by Xray I am raising my bond allocation by about 1% per quarter while reducing stocks by a like amount until I reach an asset allocation I am more happy with. Keeping it simple I'm thinking 15% cash, 15% fixed income, 20% equity and 50% hybrid. I'm thinking by me keeping half my money in hybrid funds will make my portfolio more adaptive to the ever changing capital markets (as it has in the past) while the other half will be invested in a static allocation way. By the way Xray computes my current yield at 3.1%. This is more than ample for my currents needs leaving some residual left for new investment purposes.
Thanks for stopping by and reading.
Old_Skeet
Regards,
Ted
https://www.smarteranalyst.com/bloggers-corner/sp-500-spy-extremely-oversold/
https://www.nasdaq.com/article/invesco-sp-500-equal-weight-getting-very-oversold-cm1034968
https://www.nasdaq.com/article/vanguard-sp-500-getting-very-oversold-cm1035150
Regards,
Ted
http://www.crossingwallstreet.com/archives/2018/10/cws-market-review-october-12-2018.html
With yesterday's advancement in the S&P 500 Index to 2810 on 10/16/2018 Old_Skeet's market barometer has produced a reading of 157 which bubbles in the undervalue range on the barometer's scale. Remember a higher barometer reading indicates there is more investment value in the Index over a lower reading.
For Friday October 19, 2018 Old_Skeet's market barometer, based upon its metrics, closed the week with a reading of 164 which bubbles on the barometer's scale as oversold. For the week the S&P 500 Index closed the week with a reading of 2768 which put it up one point for the week. Short interest for SPY remains at 2.2 days to cover. The three best performing sectors for the week were consumer staples, real estate and utilities. I have the US 10 Yr closing the week with a yield of 3.2% so it's yield has now become competitive with some good dividend paying stocks. A year ago the US 10 Yr had a yield in the 2.3% range. Thus the heat is on for companies to continue to produce good (and even grow) earnings and revenues to maintain (and grow) their stock prices. Otherwise, stocks will continue to falter as fix income yields rise as the FOMC's rate increase campaign is on schedule to continue. The reason I follow the yield of the US 10 Yr over the US 2 Yr is that I feel the US 10 Yr is reflective of the effects of inflation.
With this Old_Skeet is still with his age based rebalance where I am in the process of reducing my equity allocation and increasing my allocation to cash (money markets & cd's) along with bonds for more reasons than just an age based rebalance. I'm thinking of landing somewhere around 20% cash, 40% bonds and 40% stocks. This new allocation will reduce stocks by 10% and increase both cash and bonds by 5% each.
A rebalance, for me, is a process done over time and not done in a one time sitting. In this way, I can increase or slow the pace as I feel warranted since this is primarily an aged base rebalance. Otherwise, I'd be in the middle of building my spiff (special investment position).
Remember, midterm elections have now begun as early voting has started. I look for the level of political noise to ramp up over the next several weeks along with associated stock market volatility. After the elections, regardless of the outcome, I look for stock prices to stabilize and move upward as long as good corporate earnings continue. Should earnings begin to falter so will stocks. I'm thinking now is a good time to rebalance before a good stock market storm arrives because of the FOMC's scheduled level of continued rate increases. I'll bet Trump wishes he had left Janet in charge. Should the Fed kill the stock market then they will kill the goose that lays golden eggs. I have observed through the years if the stock market is up consumer spending will be up; and, if the market is down I also look for consumer spending to be down. Seems some things like home and auto sales are starting a downward trend due to higher building and financing cost. Go figure ... tariffs and interest rates are up ... while the stock market struggles. Yep, it is time to reallocate some capital.
Thanks for stopping by and reading.
I wish all "Good Investing."
Old_Skeet
For Friday October 26, 2018 Old_Skeet's market barometer, based upon its metrics, closed the week with a reading of 168 which is up 4 points from last weeks close. For the week the S&P 500 Index closed the week with a valuation of 2659 which is down 3.9% form last weeks close of 2768. For the week short interest in SPY declined a whole day and moved from 2.5 days to clover to 1.5 days. Interest on the US 10 Yr last week declined and moved form 3.2% to 3.1%.
So what does all this mean? From Old_Skeet's perspective it means more investment value came into the Index last week as the barometer reading rose. Remember a higher barometer reading indicates there is more investment value in the Index over a lower reading. It also appears since the short interest has declined we might be finding a bottom in this downdraft and something to starting building off of that begins an upward trend. In addition, some investors sought safety in bonds as the yield on the US 10 Yr declined with bond prices moving upward as some rushed to sell stocks and bought bonds driving their price upward. Remember, in general, as bond yields decline their value increases. Seems this selling stampede might soon be coming to an end for the stock market. However, to say that the stampede has ended there must be three consecutive up days in the Index. And, if you are not invested since these three combined days usually amount to a fair amount of the recapture of the decline you will miss a good bit of the rebound.
Thanks for stopping by and reading.
I wish all ... "Good Investing."
Old_Skeet
For Friday November 2, 2018 Old_Skeet's market barometer which follows the S&P 500 Index closed the week with a reading of 164 which is down 4 points from last weeks close. With this, the barometer based upon its metrics scores the Index as oversold. The Index closed the week with a reading of 2723 which is up 64 points or 2.4% for the week. Short interest in the Index remains at 1.5 days to cover while the yield on the US 10 Yr moved upward to 3.2% from 3.1%.
So what does this mean? From Old_Skeet's take it means due to a decline in the barometer's reading a little bit of the investment value in the Index diminished during the week as the barometer's reading pulled back from a reading of 168 to 164 but still scores the Index as oversold. In addition, it seems the selling stampede came to an end, by definition, as there were three consecutive up day closings during the week. It also seems, more investors found less value in bonds as the yield on the US 10 Yr rose form 3.1% to 3.2% during the week. Yield and bond values generally move in opposite direction of one another. For the week as bond yields move upward bond values moved downward.
I'm still thinking that after midterm elections we will see a pretty good stock market rally during the 4th quarter and if there is some good movement towards settling the trade debacle with our trading partners where "fair trade" becomes the trade then I'm thinking this will be enough fuel for stocks to continue to climb the wall of worry. Looking further out, should the FOMC continue its march to raise interest rates to a level where this stalls the stock market then I look for a recession to be forthcoming.
So what is Old_Skeet doing? Now that the US 10 Yr has a yield of 3.2% fixed income is looking better to me as I have now begun to reduce my equity allocation and raise my fixed income and cash allocations. I'm reducing my equity allocation by 10% and rasing both cash and fixed income allocations by 5% each. This change is a process, for me, whcih will be done over time and when completed my portfolio will bubble somewhere around 20% cash, 40% fixed income and 40% equity. Within equities I am positioning with a defensive tilt.
Thanks for stopping by and reading.
I wish all ... "Good Investing."
Old_Skeet
Good investing to All, Derf
P.S. I hope you're right about market
take-off after elections.
For Friday November 9, 2018 Old_Skeet's market barometer which follows the S&P 500 Index closed the week with a reading of 154 which is down 10 points from last weeks close. With this, the barometer based upon its metrics scores the Index currently as being in fair value. The Index closed the week with a reading of 2781 which is up 58 points or 2.1% for the week. Short interest in the Index remains at 1.5 days to cover while the yield on the US 10 Yr remains at about 3.2%. Remember a higher barometer reading indicates there is more investment value in the Index over a lower reading.
Linked below is Morningstar's Market Valuation Graph and by viewing you can see how they currently score the market. By clicking on the market capitalization tab you can view how the large caps, mid caps and small caps are scored. In addition, you can view how the sectors are scored by clicking on the sector tab.
https://www.morningstar.com/tools/market-fair-value-graph.html
Now ... I wonder what is going to happen to consumer spending if the FOMC kills the stock market? From my past experience good stock market returns increase consumer spending. At least it did with me. This faltering stock market just canned my thought for a new vehicle purchase before year end.
Boy, I sure wish Janet was back! Come on, President Trump ... Mr. Powell needs to go! He's working against us. Agreed something needs to be done about China's unfair trade pratices; and, the FOMC under his leadership is indeed not helping in this plight.