This Week in Finance: Monthly Charts, Bullish Euphoria, and Stock vs Bonds
As the world’s top investment manager, I bring you the latest insights and analysis on the financial markets. This week’s focus is on monthly charts, bullish euphoria, double 20’s, stocks vs bonds, global stocks, index membership, and the golden 60-40 rule.
Learnings and Conclusions from This Week’s Charts:
- The S&P 500 closed up +5.73% in November (+26.47% YTD).
- Numerous indicators point to bullish euphoria in the market.
- The stock/bond ratio looks stretched and divergent.
- US stocks account for approximately 75% of Developed Markets.
- About one-third of the stocks in the S&P 500 get replaced each decade.
Overall Market Outlook:
The market continues to exhibit strong bullish momentum in an uptrend. Investors are enchanted with a sense of euphoria, but it may not be the right time to switch from stocks to bonds just yet. However, this contrarian move could come sooner or later.
1. Happy New Month:
November saw the S&P 500 up +5.73% on the month, placing it up 26.47% YTD. This marks the 13th month in a row of the S&P 500 closing above its 10-month moving average, indicating a strong trend.
2. Bullish Trumphoria:
The Euphoriameter made another new all-time high in November, signaling a bullish sentiment. However, investors should be cautious as this late cycle environment may pose challenges ahead.
3. Don’t Believe Me:
US consumer expectations on the stock market made a fresh all-time high in November, confirming the bullish fervor in the market.
4. Justified?
Observations on instances when the market closed up more than 20% at least 2 years in a row suggest decent momentum, but caution is advised for potential unsustainable trends.
5. Stocks vs Bonds:
Considering the stock/bond ratio and sentiment towards treasuries, it may be contrarian to overweight bonds vs stocks at this point. Asset allocation strategies should be reevaluated.
6. Global Stock/Bond Ratios:
While developed and emerging markets saw their stock/bond ratios peak back in May, the US stock/bond ratio has diverged, presenting a bearish signal.
7. Stock/Bond Strategy:
Stocks are currently expensive compared to bonds, but other factors such as technicals and macroeconomic indicators need to align for a strong position. Bonds traditionally act as a diversifier, especially during times of recession.
In conclusion, the financial markets are showing signs of bullish momentum and euphoria, but it’s important to remain vigilant and consider alternative strategies such as rebalancing asset allocations. The shifting dynamics between stocks and bonds globally highlight the need for a diversified investment approach to navigate uncertain times ahead. Stay informed, stay cautious, and stay ahead in the ever-evolving financial landscape.