Ron Rough, Chief Investment Officer, presents our October video market update and shares what FSA is doing to respond.
Stock Market Update Transcript
Hello, this is Ron Rough with a market update video for October. It’s been nice to see stocks rebound in 2023 given the carnage we had last year, but it’s surprising that we have not seen the rebound that I would’ve expected. If you look at this table here that has a number of the popular indices on it, you can see, while the S&P’s had a nice double-digit bounce through the end of September, many of these other areas are struggling to be positive. You can see small caps only up 3%; the Dow Jones Industrial Average only up 3%. Commodities are actually down. You can see the Barclays bond actually down 1%. So it’s been a very muddled year in a year that was really supposed to be a rebound year.
Look at this additional chart or table here that breaks the S&P 500 into the 11 different individual sectors that make it up. You can see it’s really a split market. You’ve got the technology-oriented sectors up 30% on average – so technology, think about Apple and Microsoft; consumer discretionary, think Tesla and Amazon; and then communications, think Google and Facebook – those have just had fantastic years this year. But if you look at the other eight sectors averaged together, they’re actually negative for the year. Utilities, in particular, is down 17% in the first nine months of the year. So, it’s been really a challenging market.
And what does that mean for us? Those of you who know us know that we are primarily technical in nature, so we’re looking at chart patterns and investing based on those. So in general, when the market is in an uptrend, we want to be invested in equities or bonds, and conversely, when those securities turn down, we retreat to cash.
Now what else do we … suppose the environment is more muddled than that? What do we do to help us? Well, there are a number of tools that we have. One of the tools that we use to help give us a perspective when the environment’s more difficult is what I would call breadth. And that just really has to do with the participation of stocks. When some stocks are going up, are most of the stocks going up? That’s a healthy environment in our opinion. Conversely, if we have a rising market but only a handful of stocks are going up, that is not a very healthy environment.
And this next chart really lays out what’s going on this year. It might be hard to read on your screen, but the yellow chart in the middle is the S&P 500. Now this goes back to 2015, but I just want to kind of focus in on this year, the S&P being up 12% and that through early October. This blue chart that’s skyrocketing up here with the gain of 60% are eight individual technology stocks, and it’s the stocks I mentioned. It’s Facebook, Amazon, Netflix, Microsoft, Apple, Google, Tesla, and Nvidia. Eight stocks up 60%. If you take those eight stocks out of the S&P 500, you get this black line, and that line, year to date this year, is up less than 1%. It’s up 0.2%. That type of narrow market is very unhealthy, and even though the overall market trends are okay, it’s not a very healthy market, and it has us more nervous than maybe we would be otherwise.
So what do we do with this information? What you’re looking at here is the S&P 500 over the past couple of years. You can see we’re in this uptrend, but the market has come down in the third quarter. And so we have built up our money market position, probably half invested at this point across all of our strategies. But this narrow market that I talked about is one reason we’re a little extra cautious in this period.
So what are we going to do? If stocks can break back above this green trend line, which is the 50-day movement average, we’ll begin to bring all the portfolios back fully invested. Conversely, if we break below this red line here, which is right around the 200-day movement average, we would begin to seriously raise cash and probably bring all of the portfolios to the beach as it were.
So, what does that mean for overall as we look through the end of the year? Overall trends, stock market and bond market, arepretty tentative, in my opinion, not really good, not really bad. Market breadth, as I talked about, terrible. Very few stocks going up in this environment this year. But in our favor are seasonal factors; we are leaving a seasonally very difficult period – August, September – and moving into what is seasonally a very strong period – November, December, January. So we have that in our favor.
What does it mean for us as we go through the final few months of the year? As I mentioned before, if stocks can break above that 4400 level, and we’re just around 4300 now, we’ll bring all those portfolios back towards being fully invested in their equity positions. And conversely, if we break below 4200, then you’ll see us bring most of the portfolios to the beach.
So, that’s the key levels that we’re looking at. Obviously, we’re also looking at our individual fund positions to make those determinations, but at a high level, that’s what we’re looking at. So at this point, we’re kind of in this middling ground, partially invested, waiting to see if the market can decide, make up its mind, if it wants to break higher back into its uptrend or whether we’re going to roll over into year end.
So, that’s all I have for today. Thank you for watching.
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