Updated: Mar 23
by Robert Holman | The Defensive Advisor |
MARKET BULLISH … Rating of 8 (0 - 4 is bearish, 5 is neutral, 6 - 10 is bullish). Despite the recent scare on 2/25, the market remains overbought but bullish. There is a rotation and broadening of areas attracting attention of investors, away from growth areas and into value investments.
NOTE: I decided to go back to the very first issue of this newsletter – published on my personal Facebook timeline on 2/26/19 – and number them going forward, and discovered I’ve published more than 100 letters!
ECONOMY and MARKETS. Thursday Feb 25, 2021 was an extraordinary day, as Treasury auctions attracted few buyers, actually showing the lowest demand on record for 7-Yr. Notes, and rates jumped significantly. Consequently, the S&P 500 was smashed, but the Dow less so. See more at:
Interest rates have been rising for the last 4 months (7 non-consecutive months), and the broad U-6 unemployment rate has been falling. See the figures below. With vaccinations spreading and the economy growing, if interest rates keep increasing, stock prices will likely be falling. Why? Rising interest rates (up about 50 bp in the last 4 weeks) almost always lead to lower stock prices.
The stock market looks 6 months ahead. The Fed has been saying they are not going to raise rates until next year. However, the bond market is looking 6 months ahead also, and has a different view, ignoring the Fed (“hey Federal Reserve, the market sets interest rates, not you”), and is expecting increased economic activity to lead to higher inflation and interest rates, so market rates have started to move up in advance of any Fed rate decision.
As rates stabilized on Friday-Monday, or at least didn’t go higher, the market rallied.
This may have been expected by some market participants, and may have been unexpected by others, or at least others may have adopted a wait-and-see approach.
JAN DEC NOV OCT SEPT AUG JUL JUN MAY APR
11.1% 11.7% 12.0% 12.1% 12.8% 14.2% 16.5% 18.0% 21.2% 22.8%
MAR FEB JAN DEC NOV OCT SEPT AUG JUL
10-Year Treasury-Note, constant maturity
1.44% 1.54% 1.11% 0.93% 0.84% 0.88% 0.69% 0.72% 0.55%
Note: 1.54% is the closing rate for 2/25/2021, 1.44% is the 2/26 rate, waiting for 3/1 data
CHANGING. For several weeks, or maybe even months, the market seemed very overbought, especially in certain groups. Risk of a decline in prices was increasing. Money had been shifting from groups in fashion because of Covid to groups that had been out-of-fashion but were increasing in price as they were coming into fashion in a “re-opening economy” scenario.
CONCLUSION. Please call me at 972-702-6032 to see what I am doing in this scenario. Or, you may click on this link to go to my website email contact form. As a result of these factors, I’m making significant changes in my client portfolios this week.
The question is –
· will the inflation trend continue, will rates increase, and will stock prices fall? -or-
· are recent inflation and interest rates trends transitory, and will stock prices head higher?
· To get an answer to this and other questions, please call me or email me (see below)
FOR NEW CLIENTS – HWM manages risk in your portfolio by taking defensive action in times of difficulty, seeking to not give profits back to the market. If you would like to have me look at the holdings in your portfolio, please phone 972-702-6032, and I will give you pointers on how you can improve your holdings to achieve better results. You can also email me from my website www.defensiveadvisor.com
FOR EXISTING CLIENTS - thank you for your trust.
For more information or prior letters, go to my website
Opinions voiced in this post are for general information only and are not intended to provide specific advice or recommendations for any individual, without complete knowledge of that individual’s total financial profile. No strategy assures success or protects against loss. Past performance does not guarantee future results.