19-June-2021: Another sample of text from today's MarcusToday Saturday weekly wrap email:
Thought that might happen - Dow Jones down, 533, SPI Futures down 111. Volume was big as well (up 50% on the 20 day average - which may have been the options expiry).
It takes a few days for the big institutions (the World’s biggest fund managers and the very active investment bank trading desks – the ones that make the markets move each day with their short term views) to decide what to do at significant Central Bank moments.
On Thursday the FOMC effectively declared that they have hit “Peak Accommodation” in the US (it has already happened in Brazil, Canada and the UK) and whilst the market survived the next two hours of trade on Thursday afternoon after the FOMC announcement (hinting at rate rises next year), when the market dawned on the second day (last night in the US) some of the institutions have had their regular morning asset allocation meetings and made the call to sell something possibly because in the words of Maverick's rear… “It doesn’t get to look any better than that”.
[insert Top Gun image here - "It doesn't get to look any better than that." - you know that when guys say things like that in movies they're going to meet with an unpleasant end... Bear77 note.]
That was a pivotal moment for the markets, the day the Fed called the bottom on interest rates and called the top on QE. They have been buying $80bn worth of bonds and $40bn of Mortgage-Backed Securities a month - that continues for now but the writing is on the wall.
It's not a disaster. Nothing has suddenly gone wrong. It was all inevitable and mostly expected. But this is “The Moment”, the moment the US Central Bank, the most influential Central Bank in the World, called the end to the endless stimulus that has underwritten the equity markets for the last 13 years (since the GFC) and the last 15 months, since the pandemic lows.
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On the one hand, Marcus says he's not selling yet, he's waiting for the market to start selling first. On the other hand, he says, "...I’d be turning my screens on a bit earlier in the morning and if it was my money, and I was trading my personal account (“PA”), I’d be taking some profits. Just in case. The risk has risen overnight."
Remember he's a long time stockbroker turned funds manager now, so his moves are not always best followed by ordinary retail investors. There was a time when Marcus happily explained that he always sold EVERYTHING before he went on holidays - so he wouldn't have a care in the world while on holidays - and then bought it all back when he got back to work afterwards. That might work for a stockbroker, but gets expensive for the likes of you and me, particularly if we hold a lot of different positions. Also, I would be far more relaxed being fully invested during my holidays than being out of the market, because I'd be worried that companies I was no longer in would suddenly get positively re-rated by the market while I had zero exposure to them. But different strokes for different folks, horses for courses, ...and so on. Metaphors... Love them or loathe them. No, not a question. So, my takewaway from today's excerpt is that Marcus thinks that the US Federal Reserve (their central bank) has called the top of QE and the bottom for interest rates, which could result in the end of this bull market, or not. Guess we shall see.
[I remain between fully invested and almost fully invested]
10-Apr-2021: Two sample paragraphs below from Marcus Padley's Saturday (weekly wrap) email:
The final point of caution is the fact that the ASX 200 is approaching it’s all-time high, which was set in February last year, at 7197. For some reason, in Australia we don’t seem to have the same mentality as our bullish counterparts in the US, who celebrate with much fanfare an index hitting a fresh record. They celebrate it with the expectation that another record will arrive soon thereafter. From my humble observations, we perhaps more conservative Australian investors tend to ask the question ‘what the heck are we doing up here?’ as we approach and indeed create fresh record highs. Americans ask ‘what can I buy?’, Australians ask ‘what can I sell?’ And none of this is a criticism to either side, it’s just what I have observed over the past 20 years of watching markets. But it feeds into what might happen next and what we, as participants in the Australian version of the game called ‘market’, need to be aware of… alert but not alarmed.
So, to put a bow on it, right now I am bullish and willing to take on risk. As a trend trader my job is to follow the trend until it gives me strong enough evidence that it is not likely to continue. And that's what we have right now - a strong trend with some minor things to be aware of, but nothing to warrant jumping off just yet. Marcus’ quiet bull market theory is playing out nicely. But, like everyone else, I will be keeping a close eye on the evidence that suggests the trend is weakening – the sliding volumes, the foray into overbought territory, and the likelihood that we’ll all ask the question if and we challenge the all-time high.
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Carl Capolingua from Think Markets is also a trend follower, so it would be interesting to hear his take on things at this point. We haven't heard much from him since the Strawman Classic competition ended, unless I'm just not watching the right shows or looking at the right sites.
Marcus Padley is of course from the MarcusToday newsletter and website - click here for a free 30-day trial to his newsletter and website. It's not like this site - it's not interactive. It just provides a lot of info, and a 3x daily newsletter (Mon-Fri x3, + 1 on Saturdays) and I use it to keep up to date with the markets both here and overseas. I find it very useful, as are his views on occasion. I am not a trader, and while I like to be aware of trends, I do not often follow them. This week I found his views on the US market's reactions to hitting new highs vs. the equivalent reaction here in Australia quite interesting, as they are both quite different. Part of that, in my opinion, could be that they have had a President for the past 4 years (prior to Biden) that equated markets hitting new highs with personal achievement and success. In short, they had an Administration that was keen to prop up equity markets there, whatever it took, and always tried to stem panic and doubt whenever it started to creep in. I think that started to reinforce the belief that if you invested in shares, you could rarely lose. Shares always go up. Even when they drop, they'll always bounce back.
It's never that simple of course. Plenty of companies go broke, others are permanently negatively rerated by the market (as ex-growth, or simply previously overvalued). Not all shares go up and stay up, although the majority of larger companies have share prices that will rise, the majority of the time, or over time. There are still landmines in every market. Many companies considered safe and reliable have blown up or gone broke. Plenty more of lesser quality and size have too. We've just seen a lot of those companies propped up over the past year and a bit, and many that would have failed have not - due to government stimulis and government assistance. I think that's an unsustainable situation, i.e. it can't last forever, but I have no idea how long it can last for. Just not forever.
I am not particularly bearish or bullish right now. I think we could easily grind higher from here, but we could just as easily see a 10% correction or a deeper pull-back if one or two things go wrong or if governments and central banks don't placate markets and market participants enough every single time there is an issue that needs to be addressed.
So I remain mostly fully invested, most of the time, in most of my portfolios, because I'm no good at market timing, but I certainly remain cautious and I absolutely believe that portfolio positioning is very important when we're up here (near or at new market highs), as I've mentioned previously in this thread.
27-March-2021:
Our market up 1.73% for the week and the SPI Futures up 49 this morning (Saturday) as Wall Street jumps 453 points on Friday (+1.39%) with the NASDAQ going in the same direction for once, up 1.24%. A good week for Australia last week compared to the US. The US saw a small fall in the S&P 500 and a 1% fall in the NASDAQ.
Sectors on the move this week [here in Australia] included defensive sectors once again with Utilities up 3.54%, Telcos up 3.13%, REITs up 2.59%, Consumer Staples up 2.90% and even Gold up 1.59%. Taking a back seat this week were Resources up 0.86% and Banks up 0.58%. The information technology sector the only sector to dip, down 0.04%.
This rotation from Ritzy to Defensive continues with the main theme this week being the rising case numbers in Europe and some US States, continuing Northern hemisphere lockdowns, and a string of US economic numbers that have come in below expectations throwing doubt on a straight-line economic recovery and the angle of its trajectory.
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The above is a small sample of Marcus Padley's Saturday weekly-wrap email that I received in my inbox this morning. For a free trial subscription, click here for details and the sign-up page.
As I mentioned elsewhere a couple of weeks ago, unless you held a lot of Australian banks in your portfolio (I hold none), then you would have most likely underperformed the ASX200 during that recent period when the banks were the best performing sector and most other sectors were falling, particularly the tech (IT) sector which fell the most. My portfolios certainly did (underperform the index), and my Strawman.com scorecard did also. The key to outperforming the wider market over long time periods - or even just over decent time periods - are (1) to have a solid plan based on hard work (research generally), and (2) to stick to that plan even when everything seems to be going the wrong way for you. Do not let volatility shake you out of a good longer-term position, i.e. a position in a company that will provide good returns if you hold it for long enough. That's where the money is made, in the waiting, not the doing. Get set, and sit back and watch the magic of compounding - the money that money makes making more money.
Of course, first you do have to "get set". And for many, including me, that involves constantly reviewing your investment choices and comparing them to alternatives. That doesn't mean trading in and out necessarily, although it might mean making some changes from time to time when the facts change. But you need to develop a good level of confidence in both your strategy and your portfolio of investments. Some of my best periods of outperformance have been when I've been on holidays and have not been watching the market. Which probably means I'm watching the market too much during the remainder of the year I suppose. But I do enjoy that side of it also, and it's good to do what you enjoy. Even better if you can make money doing what you enjoy.
I feel like we're at some sort of inflection point now, or that we could be. Here in Australia we've got "Jobkeeper" coming to an end - and the eviction moratorium ending also. The US recovery is patchy at best, and not helped by some states opening up everything way too early with COVID case numbers still too high. We have new strains of COVID popping up and there is always one or two that they say they are not sure about in terms of whether the vaccines will cover those new strains as well. Europe has seen worse case numbers than expected in recent days. Up to now it has been "Buy the dip" with every sell-off turning into a little mini-recovery, and that seems to be based on expectations that Governments and Central Banks will just keep on finding new ways to prop up economies and inject confidence back into the system, every single time. I just get the feeling that it might just take one incidence of a central bank and/or government underwhelming the market with their response to a particular issue, and we could switch from overly confident to the opposite.
Now, I'm not going to cash and I never have. I'm still either fully invested or close to it in most of my portfolios. I'm not good at timing the tops and bottoms of the market at all, so I really do not try to. However, I think positioning is important now, more than ever. I want the majority of my portfolios to be in either very solid, high-quality companies who are very well managed and have net cash preferably, or very manageable debt levels under a wide variety of conditions, or else companies that will do OK if things keep grinding higher, but would do better than most if things go south. I don't need all of each of my portfolios to be in such companies, but I want the major part of each portfolio to be invested in those companies. There is then room for some higher risk, higher potential return plays, and other companies - with a smaller portion of each portfolio, if I want to invest in those.
Just to give one example of my idea of sensible positioning, I would not want to have large exposures to tech stocks that are priced based on future potential rather than current performance. I'm happy to hold shares in such companies, but I want to keep my position sizes proportionate to the risk that those companies get sold down due to a continuation of the current rotation into more defensive sectors, or sectors that are perceived as more defensive. So diversification across sectors as well as companies within sectors, with an eye on current market valuations and how sustainable they are. I just get the feeling that we're in for a very interesting year in 2021.
Early December 2020: So this post is about the US rather than the ASX, however what happens there ripples out and certainly affects sentiment as well as index movement here in Australia, so it pays to have one eye on the US when trying to predict where the ASX might be heading...
"Napoleon once said that an army marches on its stomach. Well to paraphrase, the stock market marches on its stimulus (monetary and fiscal)." - Henry Jennings in the "MarcusToday" newsletter, Saturday edition (weekly wrap), 05-Dec-2020.
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Some other bits and bobs:
Joe Biden announced that he will nominate former head of the Fed, and vocal supporter of further fiscal stimulus, Janet Yellen as Treasury Secretary. Trump endorsed the start of the normal presidential-transition process, allowing the General Services Administration to release the funds to aid the transition.
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It seems that every session that the Dow rallies, it is responding to the same headlines. As I grab my phone and read Bloomberg this morning, I am beginning to feel like Bill Murray in Groundhog Day. ‘Dow rallies on stimulus optimism’. So much optimism but so little stimulus. The last stimulus we saw was more than 250 days ago. Politicians in the US were not leaving Washington for their summer holidays until they had agreed on stimulus. Summer holidays. Now they are saying the same things about their Xmas break. [Henry Jennings again]
Meanwhile, in the US the job recovery is stalling. Yet the Dow and the other main indices are all hit fresh records, the first time we've seen such synchronised records since 2018.
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Finally, when we look at the US market for signs of topping out and record fatigue, there are a number of charts we could look at. ...the Schiller CAPE is at its highest since 1929, not including the dot com boom. We have seen this before and the market marches higher. No reason to get excited yet. Just worth keeping it in mind.
Plus, the US Treasury 10-year yields are hitting their highest since March. Again, no reason to get excited but something to keep at the back of your mind for when the focus shifts. After stimulus what next? The market is always looking for what next after all.