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@orage, you are correct and I have corrected ma earlier post.
@yogibb, I believe this year’s challenge with both stocks and bonds are related to Fed’s quantitive tightening in addition to aggressive rate hikes. The only previous attempt by the Fed was in late 2018 that coincided with an ugly 20% stock market sell-off. And we are far from taming the high inflation.
As others have mentioned, the damage in bondland makes it difficult in terms of any repositioning. One example from the people at Dodge & Cox: Their DODLX (Global Bond Fund) has dropped 12% over the past year. Their supposedly more aggressive DODBX (Balanced Fund) has fallen only 8% over the same period. And their even more aggressive DODGX (Stock Fund) is down only 7.4% over that time. Go figure. Normally, in a falling equity market one might consider moving from fixed income into equities. But not here. The world turned upside down.
Even during the internet bubble or GRC, the Fed was cutting rate quickly as the stocks fell and bonds rose. Right now the asset class correlation between stocks and bonds breaks down when they falling simultaneously. Thus bonds (even high quality ones) offer no protection for stocks in asset allocation funds.
Yes, a long-term time horizon is essential to keep in mind these days. We've repeated it to each other here, over and over. Risk tolerance, length of time in the market. Research before you buy. I just bought a pretty good slug of junk bonds at a pretty good share price. delicious yield. But don't bet the farm on one fund, eh? My perennial favorites, the big banks in Canada, smell delicious right about now. CM. RY. BNS. BMO. TD. exactly a month ago: Ron Baron.
So far this year, interest rates have been the driver of asset prices - a la the discount rate. (On the way up for the past 13 years we did not acknowledge this relationship and thought it is all our individual prowess.) BBB bonds at 5.7% and S&P 500 at 3,700 indicates both credit and equities are yet to price in all the rise in interest rates - risk assets still refusing to acknowledge the full weight of the interest rates. So, first we may have a mini restoration of historic correlations to fully reprice risk assets vs interest rates. If and when we start to feel the weight of negative economic conditions, then the historic relationships / correlations will return for us to see more clearly. More often than not, many of us are not wrong, we are probably just early - markets are not as efficient as we think. Part of my new practice has been to try to wait a few days / weeks so as to sync with the market.
You got it. At the onset of COVID pandemic, the asset correlation between bonds and equities collapses to near 1.0. If inflation persists, this situation can continue well into 2023.
Friday and today the S&P 500 has been flirting with the YTD intraday low (3636), staying above for now. How it goes from here could be big, at least for the near term.
The SP500 also fell below its mid-June low today, 9/26/22. The DJIA and DJ Transports did that last week, but new today was that DJIA was also in the bear market with -21% decline from January high (1st time in 2022). The Nasdaq Comp and small-cap R2000 are barely above their mid-June lows. Interesting that mid-June low-test is taking several days, Thursday, Friday, Monday, and is still ongoing. But IMO, it would be a failed test and then we will see where things end up. https://stockcharts.com/h-perf/ui?s=$SPX&compare=$COMPQ,$INDU,$TRAN,IWM&id=p09148194115
Bonds were so week today, 9/26/22, that several allocation funds lost MORE than S&P500
Ditto. Caught my attention while scanning a watchlist I keep. VWINX -1.26% / VFINX -1.03%.
Thought about shifting a bit from my GNMA (etf) into a mining stock late in the day. Stopped when I noticed the GNMA was off quite a bit more than the stock. ISTM The GNMA was down over 2% at the time.
I can’t conceive that the “free-fall” affecting virtually every asset class can continue that way for long. Would seem to defy logic. But what do I know? Lots of balls in play here and abroad. So, maybe I’m missing something. The hardest factor to get a handle on might be the “herd mentality” effect. To what extent is the stampede into cash and short duration paper exaggerating the action in all the various markets - notwithstanding that there are important fundamental reasons as well.
"Bonds were so weak today, 9/26/22, that several allocation funds lost MORE than SP500."
You're not kidding. I just checked about a dozen intermediate core/core plus bond funds which I track via M*. Thay were down 1.12% to 1.71% today YTD returns range from -13.18% (DODIX) to -21.35% (WACPX).
Yes, the total bond index (BND) got hit hard (-1.28%) today, while TRP floating rate bond is down -0.44%. At the same time, the yield of 10 year treasury reached 3.878%, the highest level for this year! And that is a bad omen for bonds. Also energy and commodities got hammered too.
@hank : You said, " Lots of balls in play here and abroad. Quite right, golf,tennis,baseball, football,soccer, & etc." Sorry hank I couldn't resist.
My question, as the rates go up , are allocation funds replacing matured bonds with new higher paying bonds ? I'm guessing average duration has a lot to do with how hard the allocations funds fell along with their allocation %.
I did note some green last night & hoping it holds.
@Derf, a minor bounce today will create more mess. The 3+ day low-June-test isn't over yet as Nasdaq Comp and R2000 haven't fallen through. So, I hope that today is either a huge up-day that will say low-test was a success (minor breaches are OK), or a down day making clear that low-test failed. Otherwise, we will have a situation in limbo (-:).
One manager wrote recently if have upswings for few days tradings (3 4 days) >80s% stocks positives may shift market breadth, despite negative bad news (unemployment interest rates imploding etc), sp500 dowjones still upswings and may develope new transitions / inflicted points.
Only time will tell
Keep following Tommy Lee fundstrat, he maybe an idiot keep saying sp500 moon 5000s next yr. Hard to say he maybe right but unclear if sp500 at those levels end 2023 or 2024. Need to quit those koolaids
I'm wondering if the employment/unemployment picture is becoming fragmented. There are many reports of large layoffs in businesses and financial operations which are large-scale operations. But, as Crash mentions, not so much in smaller local businesses, largely retail, restaurant, and other "service" type jobs.
I'm guessing that the overall employment picture may be more complex than is generally being reported. It may be that the reporting mechanisms were not designed to accurately reflect the situation that we have right now, and therefore don't give us sufficient granularity.
That's a repeat of something that I speculated on a few days ago. In this morning's Wall Street Journal there's a report that suggests that that's actually the case:
Here's excerpts from that report, severely edited for brevity:
The economy is weakening, big companies from Ford to Facebook’s parent are cutting jobs or freezing hiring and inflation is eating into household budgets. Yet for many small-business owners, finding workers is as difficult as ever.
More than one-third of small businesses said hiring challenges had worsened in the three months ended Sept. 1, according to a Goldman Sachs survey of nearly 1,500 small-business owners. Forty-seven percent of them said finding and retaining qualified employees was the most significant problem small businesses faced, up from 43% in the survey released in June.
Nearly 60% of small companies report that worker shortages are affecting their ability to operate at full capacity, according to a September survey of more than 725 small-business owners.
Nearly 80% of small-business owners said they have increased wages and compensation in response to hiring challenges, according to the survey, and another 11% plan to do so. In addition, 60% of small businesses have refined their recruiting strategies, while 46% have boosted employee benefits.
Some small-business owners say they see the job market easing at the margins. William Duff Jr., founder and managing principal of William Duff Architects Inc. in San Francisco, said the firm is getting more applications for junior-level jobs that require six to seven years of experience or less. Senior architects are harder to find, he said. The 30-person firm, which struggled most of the year to fill job openings, handed out raises at the start of the year and again in the summer.
Boudreau Pipeline Corp., based in Corona, Calif., says it has turned down more than $13 million in work this year, roughly 22% of the amount it has been awarded, because it doesn’t have enough staff. The roughly 350-person company installs underground utilities, water, sewer and storm drains.
“It’s frustrating,” said the company’s president, Alan Boudreau, who figures he could easily employ 50 more people. The company has boosted wages by 22% over the past two years and added three in-house recruiters. It offers hiring bonuses of as much as $2,500 and retention bonuses of up to $5,000, provided workers stay at least one year. In early 2021, the company boosted referral bonuses to as much as $1,500, up from $150 four years ago. Referrals are the best source of new hires, Mr. Boudreau said.
In August, Vladimir Gendelman eliminated college-degree requirements from all job positions at his Company Folders Inc., a Pontiac, Mich., maker of custom presentation folders, binders and envelopes. He came up with the idea after promoting his executive-assistant to a job as print project manager, though she didn’t have any skills or training in printing, prepress or graphic design.
“We realized we don’t need an education,” he said. “We need somebody who is learning on their own, somebody who can figure things out.”
Larry Summers came very close on Friday’s WSW (Bloomberg) to suggesting the work-at-home policies are cutting into productivity and adding to inflation. The logic: Overall, employees might be working less hard at home than they would in an office and may be taking longer breaks. (Imagine that!) Thus, the labor costs for a given product rise. It’s the equivalent of paying workers a higher salary. Summers did some numbers crunching using a loss of 15 minutes per week per worker (or thereabouts) and multiplying it by the number of workers. Came to a substantial loss of productivity / increase in labor cost per goods & services produced when viewed in that way.
And how about the even more conservative( about 29% equity) VTINX which is off -15.77% YTD as of yesterday. Vanguard Target Retirement Income Fund is my benchmark and I am happy to say I am beating it handily.
9/27/22 SPY -0.26%, BND -0.44%, LQD -1.50%, VBINX -0.23% So, the problem with VWINX -0.78% was its corporates. Nonetheless, VWINX had the largest decline among the hybrid funds (MA, CA, multi-asset) on my watchlist, and FPURX -0.14% the smallest decline. Go figure!
We've all been through this sort of thing before. This time is no different, other than consideration of the extraordinary energy factors which we've discussed in other threads, and which will surely make European investments more difficult, at least for the present.
In this sort of market pullback any asset class of reasonably normal construction is going to go down. Only exotic assets of unusual construction will fare well, and typically most of us are not about to sell what we have and go looking for those at this point.
I surely understand that it makes us feel better to share the misery. But, here it is: Pretty much everything that we normally regard as a worthwhile asset is going to keep going down until the magic moment when that stops. Then, from that point, pretty much of that stuff is going to go back up. This is all going to take a while. You guys know that. So there's no point running around frantically and looking for some magic safe rabbit hole. There ain't none.
@hank : to go along with my above comment, checkout Salt & Pepper or vice a verse a @ WSJ 9/27
@Derf, You might be interested in this one from the WSJ 9/26:
“Buying the Stock-Market Dip Is Backfiring. Investors Keep Piling In Anyway.” - By Gunjan Banerji | 1208 words
Main point of article - Big money has been selling stocks this year while smaller retail investors have been adding to holdings or staying put (broadly speaking).
Excerpt:
“Some of the momentum-driven trades that flourished over the past two years have caused big losses for investors. Attempting to buy the dip in Cathie Wood’s ARK Innovation ETF, for example, has been particularly painful. … On Wednesday, shares of the fund jumped as much as 3.2% as traders piled in, hoping to ride a rebound after a continued selloff that has now dragged it down 60% this year. Instead, the fund ended the day down by roughly the same amount after the Fed’s interest-rate decision led many traders to rapidly change their forecasts for how aggressive the central bank would be in raising rates through next year. The rate increase stoked a sharp selloff across the market. The ARK ETF drew $197 million of inflows Wednesday, the most for a single day since July, according to FactSet. The fund resumed its slide Thursday, falling 4.3% and heading toward a double-digit decline for the week.”
Quoted from The Wall Street Journal, September 26, 2022
Personally, I’ve had both good and bad luck toying with ARKK during the year. Sold a chunk for a nice gain 2 or 3 months ago. Currently hold a very small position which is down single-digit since buying. Remain optimistic.
PS - Just noticed the NASDAQ down -30.78% YTD. A dipper’s paradise it would seem.
Unfortunately, most "balanced funds" and even 30% equity funds ( like VWINX) have pretty long duration bond leaves. M* says effective duration is 7 years.
For every 1% rise in interest rates, that means a 7% drop in NAV
As the bond market was at 40 year highs before all this started, this was somewhat predictable. I don't understand why fund managers stay locked into positions like this, especially for "conservative" funds.
Comments
@yogibb, I believe this year’s challenge with both stocks and bonds are related to Fed’s quantitive tightening in addition to aggressive rate hikes. The only previous attempt by the Fed was in late 2018 that coincided with an ugly 20% stock market sell-off. And we are far from taming the high inflation.
Others also point to the Fed’s action leading to the situation today.
https://axios.com/2022/09/22/fed-quantitative-tightening-markets
For now I continue to buy treasuries and hold them to maturity.
YTD from Vanguard funds, 9/23/22:
Total bond index, -13.7%
Intermediate term corporate bond index, -15.7%
Short duration bonds sustained less damage:
Short term inflation protection bond, -3.2%
Short term bond index, -6.5%
Foreign bonds:
Total international bond index, -12.2%
Pimco emerging market bond, -19.5%
Pimco emerging market local currency bond, -11.6%
Equities are all down:
S&P 500, -21.6%
Developed market index, -26.4%
Emerging market index, -21.9%
exactly a month ago: Ron Baron.
https://twitter.com/charliebilello/status/1573684964465549315?t=v0rNubuT0L9wPJkNO73gzg&s=19
Everything beaten up bad today
Leg down
Capitulation
Don't known end points but lots folks say maybe getting close
https://stockcharts.com/h-perf/ui?s=$SPX&compare=$COMPQ,$INDU,$TRAN,IWM&id=p09148194115
Moderate-allocation BALFX, DODBX, FBALX, FPURX, VBINX, VGSTX, VSMGX, VWELX
Conservative-allocation TRRIX, VTINX, VSCGX, VWINX
Multi-asset FMSDX, VPGDX
Key are benchmarks SPY -0.99%, BND -1.28%, LQD -1.74%, VBINX -1.16% (Bond/Treasury volatility MOVE jumped up +11.9%)
Thought about shifting a bit from my GNMA (etf) into a mining stock late in the day. Stopped when I noticed the GNMA was off quite a bit more than the stock. ISTM The GNMA was down over 2% at the time.
I can’t conceive that the “free-fall” affecting virtually every asset class can continue that way for long. Would seem to defy logic. But what do I know? Lots of balls in play here and abroad. So, maybe I’m missing something. The hardest factor to get a handle on might be the “herd mentality” effect. To what extent is the stampede into cash and short duration paper exaggerating the action in all the various markets - notwithstanding that there are important fundamental reasons as well.
You're not kidding.
I just checked about a dozen intermediate core/core plus bond funds which I track via M*.
Thay were down 1.12% to 1.71% today
YTD returns range from -13.18% (DODIX) to -21.35% (WACPX).
My question, as the rates go up , are allocation funds replacing matured bonds with new higher paying bonds ? I'm guessing average duration has a lot to do with how hard the allocations funds fell along with their allocation %.
I did note some green last night & hoping it holds.
One manager wrote recently if have upswings for few days tradings (3 4 days) >80s% stocks positives may shift market breadth, despite negative bad news (unemployment interest rates imploding etc), sp500 dowjones still upswings and may develope new transitions / inflicted points.
Only time will tell
Keep following Tommy Lee fundstrat, he maybe an idiot keep saying sp500 moon 5000s next yr. Hard to say he maybe right but unclear if sp500 at those levels end 2023 or 2024. Need to quit those koolaids
Here's excerpts from that report, severely edited for brevity:
https://www.freep.com/story/money/cars/general-motors/2022/09/27/gm-return-to-office-detroit-work-appropriately/69520262007/
Larry Summers came very close on Friday’s WSW (Bloomberg) to suggesting the work-at-home policies are cutting into productivity and adding to inflation. The logic: Overall, employees might be working less hard at home than they would in an office and may be taking longer breaks. (Imagine that!) Thus, the labor costs for a given product rise. It’s the equivalent of paying workers a higher salary. Summers did some numbers crunching using a loss of 15 minutes per week per worker (or thereabouts) and multiplying it by the number of workers. Came to a substantial loss of productivity / increase in labor cost per goods & services produced when viewed in that way.
VWINX: -.78%
VFINX -.21%
I’m thinking those conservative investors in VWINX might be fleeing in droves. Didn’t expect or sign-up for double-diget losses (off -14.36% YTD)
SPY -0.26%, BND -0.44%, LQD -1.50%, VBINX -0.23%
So, the problem with VWINX -0.78% was its corporates.
Nonetheless, VWINX had the largest decline among the hybrid funds (MA, CA, multi-asset) on my watchlist, and FPURX -0.14% the smallest decline. Go figure!
Who’s counting? Most assets are showing losses.
We've all been through this sort of thing before. This time is no different, other than consideration of the extraordinary energy factors which we've discussed in other threads, and which will surely make European investments more difficult, at least for the present.
In this sort of market pullback any asset class of reasonably normal construction is going to go down. Only exotic assets of unusual construction will fare well, and typically most of us are not about to sell what we have and go looking for those at this point.
I surely understand that it makes us feel better to share the misery. But, here it is: Pretty much everything that we normally regard as a worthwhile asset is going to keep going down until the magic moment when that stops. Then, from that point, pretty much of that stuff is going to go back up. This is all going to take a while. You guys know that. So there's no point running around frantically and looking for some magic safe rabbit hole. There ain't none.
Regards- OJ
“Buying the Stock-Market Dip Is Backfiring. Investors Keep Piling In Anyway.”
- By Gunjan Banerji | 1208 words
Main point of article - Big money has been selling stocks this year while smaller retail investors have been adding to holdings or staying put (broadly speaking).
Excerpt:
“Some of the momentum-driven trades that flourished over the past two years have caused big losses for investors. Attempting to buy the dip in Cathie Wood’s ARK Innovation ETF, for example, has been particularly painful. … On Wednesday, shares of the fund jumped as much as 3.2% as traders piled in, hoping to ride a rebound after a continued selloff that has now dragged it down 60% this year. Instead, the fund ended the day down by roughly the same amount after the Fed’s interest-rate decision led many traders to rapidly change their forecasts for how aggressive the central bank would be in raising rates through next year. The rate increase stoked a sharp selloff across the market. The ARK ETF drew $197 million of inflows Wednesday, the most for a single day since July, according to FactSet. The fund resumed its slide Thursday, falling 4.3% and heading toward a double-digit decline for the week.”
Quoted from The Wall Street Journal, September 26, 2022
Personally, I’ve had both good and bad luck toying with ARKK during the year. Sold a chunk for a nice gain 2 or 3 months ago. Currently hold a very small position which is down single-digit since buying. Remain optimistic.
PS - Just noticed the NASDAQ down -30.78% YTD. A dipper’s paradise it would seem.
https://www.etf.com/sections/features-and-news/best-bang-your-buck-isnt-short-t-bills
Floating treasury funds USFR and TFLO are up YTD.
Unfortunately, most "balanced funds" and even 30% equity funds ( like VWINX) have pretty long duration bond leaves. M* says effective duration is 7 years.
For every 1% rise in interest rates, that means a 7% drop in NAV
As the bond market was at 40 year highs before all this started, this was somewhat predictable. I don't understand why fund managers stay locked into positions like this, especially for "conservative" funds.