History Tells a Story…9-19-22
We have taken a look at what has transpired in the markets since the start of the Bubble on August 7. 2020. The analysis looks at sectors and how they performed percentage wise during various time frames created by both market and FED events.
This analysis uses the 25 indexes that we use to see the macro picture. Some of the indexes are standard market indexes and some are ones we have created based on combining stocks within a sector that we trade in our model. A glossary of terms is listed at the end of this piece. The dates that we use were collected from weekly data and may not exactly correspond to dates where changes occurred, for example we use 8/3/20 rather than 8/7/20 for the start of this overall scenario.
First, the time periods reviewed..
- Period 1 is 8/3/20 to 8/30/21, what we term PEAK BUBBLE, the period starting with the point where the FED overstayed easing and ending at a time when the frantic bubble buying frenzy subsided, although the actual rollover top was around four months later.
2. Period 2 is 8/30/21 to 5/11/22, what we term as END OF BUBBLE, BEGINNING OF BOTTOM. It includes the rollover top in stocks and the point where the FED acknowledged inflation and started its effort to control it.
3. Period 3 is 5/11/22 to 6/6/22, a brief period that we term as STOCK BOTTOM, END OF COMMODITY INFLATION, when general stock market prices were hit all the while when commodity prices were peaking.
4. Period 4 is 6/6/22 to 9/19/22, a period that we term END of COMMODITY INFLATION and START OF FED SETUP, a period of chaos in which the FED was operating in panic mode as it tried to set a new narrative to offset their huge 2020 mistake.
5. Period 5 is 9/19/22 to 11/4/24, a future period in which a new paradigm will evolve and be marked by a 2024 election capstone, an election that will incorporate the start of new, younger, and wiser political leadership, what Strauss and Howe talk about evolving in the “Fourth Turning”. Some guesses on our part as to investment sectors ranking are included.
Now some review and analysis of these periods. The goal is to reveal some insight into what will happen next. You will note that in all these periods, four indexes are shown in yellow, these are the four sectors that have been highlighted in our NEW ECONOMY model beginning on 5/11/22. My comments below regarding to each period activity will be primarily just a few things that jump out at me. Obviously there is a lot of information created by the ranking of all 25 sectors within each period, rankings that can generate your own thoughts. Feel free to respond in the blog, I will repost those that have relevant insights.
PERIOD 1 8/3/20 to 8/30/21 REVIEW
A look here at the rankings of the various sector indexes provides a picture of what happened during the time the FED was in full Bubble backing mode and traders and investors piled on with extreme enthusiasm. Guess what, Bitcoin and MEME buying were the top sector plays. Infrastructure and Biotech were also front and center. Even HYG (junk bonds) were positive. The stuff that didn’t work were various bonds plus the dollar and gold.
PERIOD 2 8/30/21 to 5/11/22 REVIEW
This is what I call the end of active bubble building and the start of active FED response. What you see here is that the majority of the sectors, 18 of 25 ,had negative returns during this period. Oil, commodities, infrastructure, the dollar, and gold held on to the bubble rumblings during this period. The sectors that we see as part of the new economy did very poorly during this time as investors tried to sort out what to unload. The darling bitcoin buys during the bubble had a sharp reversal down.
PERIOD 3 5/11/22 to 6/6/22 REVIEW
This short period consists of the early stages of the stock market bottom culminating in the commodity top of 6/6/22. Even fewer of the sectors did well, only 6 of 25 had positive returns. Obviously, since commodity prices signaled the end of this period, they would have been the best performers leading up to the end. Interestingly, the SOLAR sector did well here as forward thinking investors took a cue on what was happening with climate change and oil prices. Gold tried to hold on, but there was not enough general panic for it to make its case. Overall, the market was in a general sell-off mode and the take-off was that investment guru’s found this to be a time when they could not depend on the FED lift and found themselves short on ideas. Complicating all of the action was FED follower short sellers who kept adding to short positions as the FED tried its version of handling inflation, i.e. using demand based fixes when supply based fixes were needed. I do however, commend the FED at ending easy money and wish they now would concentrate on stability and voice that stability goal.
PERIOD 4 6/6/22 to 9/19/22 REVIEW
To me this may be the most fascinating period, as it is less history and more forward thinking. It is the period when commodity-based inflation was declining and the FED was putting forth a major initiative for the coming 9/21/22 Powell presentation. Three of our NEW ECONOMY sectors have topped the performance of this time period. Our other sector, computer chips, the core building block, are lagging as former industry problems are rebuilt. Since commodity prices are in decline during this period, commodities and oil did poorly, and bitcoin found itself as not a solution in the NEW ECONOMY. Overall, over half of the sectors were in negative territory, contributing to a picture the FED wants to portray of their scare tactic to corral inflation using gloom and doom.
PERIOD 5 9/19/22 to 11/4/24 REVIEW
Here I try to look forward for some investment themes that can thrive with a stable 3.5 % FED FUNDs rate. I believe that taking on CLIMATE CHANGE ISSUES are the biggest single theme. This theme includes more than alternative energy and electric cars, it includes everything that one needs to live in a stable manner. Community and locally sourced will be front and center. Globalization will continue but in a less overwhelming way. So, the sectors rankings that I portray during this period are solely guesses, and I leave the majority as unknown.
GLOSSARY OF SECTORS
The sector indexes that we have put together privately have been outlined in previous studies and included in previous blogs. They include various stocks within a sector that our model screened. They are not capital weighted. Most are self-explanatory or common index terms. Here are a few of the more uncommon ones: WB FG refers to wanna be fangs; SPX+ is made up of SPX+NDQ+RUT+DJI; ARK+ is all the ARK ETF”S, COMP is a composite, all four stock indexes, plus bonds, gold, commodities, and bitcoin. Later this week, for your more comprehensive review we will add a detailed list of all stocks the model follows in each sector.