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Hear from Chief Investment Officer Jesse Mackey in this week's Market Perspective.
Video Transcript
I’m Jesse Mackey, CIO of 4Thought Financial Group, and this is 4Thought’s Weekly Market Perspective for the week of August 18th, 2020.
The S&P 500 Index of US large cap stocks has been hovering just below its prior Bull Market record level for over a week. It's possible that a new record will be achieved in the coming days, or even as early as today, given its very close proximity to the threshold - but it's not necessarily a foregone conclusion in the short term.
The most recent low point for the S&P 500 Index following its dive into the 2020 Bear Market was on March 23rd, at which point it had dropped more than 34% from the record Bull Market peak achieved on February 19th. After an initial very rapid rebound, more recently it has tentatively pushed back into positive territory for the year-to-date, but it still sat just 0.34% below its record peak as of the close of business yesterday (8/17). The recovery rally in large caps has been driven primarily by multinational growth and technology company stocks. This strength in a narrow segment of the stock markets masks much broader weakness. The recovery in other large cap sectors and in US small and mid cap stocks has been far less impressive and is still far from complete.
Historical market type statistical analysis reveals that once a Bear Market is confirmed (which occurred on March 11th), the average time to the trough of the cycle is approximately 5-6 months later and the average additional loss is approximately 16.72% from the Bear confirmation point (although both the actual time to trough and additional cumulative loss vary widely depending on the specific time period referenced). Both of these thresholds have now been almost met or exceeded, which may signify that the Bear Market has run its course.
From a probabilistic analysis perspective, stock types range from near fair value (such as with mid cap stocks) to significantly overvalued (in the case of large cap growth stocks). Bond types range from near fair value (in the case of emerging markets bonds) to slightly overvalued (in the case of Treasury Inflation Protected Securities). Against this backdrop the outlook for stocks is now neutral in the intermediate term based on the overall aggregate of our historical market-type data analysis and quantitative probabilistic analysis.
Treasury Inflation Protected Securities are the best performers so far in 2020, while US small cap stocks show the worst year-to-date performance. Emerging markets bonds now reflect the most attractive pricing relative to the alternatives, while US large cap growth and tech stocks are by far the least attractive. With regards to allocations amongst investment methods, we are now allowing overweight allocations to Strategic Asset Allocation, and underweights to Liability- Driven Investing, Selective/Concentrated Investing, and Opportunistic Investing.
I hope this was helpful. If you have questions or you’d like to discuss how to implement any of this, please contact 4Thought at 516-300-1617 or at info@4tfg.com – and don’t forget to subscribe to our blog feed and our YouTube channel. Thanks for watching, and see you next week.
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