- This ETF trading model uses the Conference Board Leading Economic Index to determine “Risk-On” periods for equities.
- A universe is defined from the SPDR, Vanguard, and PowerShares ETF providers for the sectors healthcare, energy, communication, technology, and general multi-sector funds, holding large-mega cap stocks from the United States.
- The model selects 3 ETFs from the previously defined universe at the beginning of a “Risk-On” period and holds these ETFs continuously until the end of the “Risk-On” period.
- During “Risk-Off” periods for equities it goes to the gold ETF (GLD) to maximize returns. ETF (BND) is also a suitable alternative to GLD.
- The simulation shows that this strategy would have produced over 7-times the total return of SPY with similar risk.
Blog Archives
Timing The Stock Market With The Conference Board Leading Economic Index
Stocks Are Moderately Overvalued but 10-Year Forward Returns Look Good: Update April 2023
- The average of S&P 500 for March-2023 was 3,969 (15% down from Dec-2021 average of 4,675) and is 384 points higher than the corresponding re-calibrated long-term trend value of 3,585.
- For the S&P 500 to reach the corresponding long-trend value would entail a 10% decline from the March average value, indicating that the S&P 500 is not significantly overvalued anymore.
- The Shiller CAPE-ratio is at 27.9, 8% higher than its 35-year moving average (MA35), currently at 25.9, forecasting a relatively high 10-year annualized real return of about 7.3%.
- The long-term trend indicates a forward 10-year annualized real return of 5.5%
- However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
iM’s Business Cycle Index Signals an Imminent Recession – Update 4/7/2023
- Knowing when the U.S. economy is heading for recession is paramount to successful investment decisions.
- Our weekly Business Cycle Index would have provided early reliable warnings for the past seven recessions and signaled the Covid 2020 recession one week late.
- The Department of Labor backward revised nearly two years of seasonal adjusted data.
- The BCIg is now signalling a recession since mid March 2023 with a 12 weeks average lead time.
- The BCIw is now signalling a recession, earliest in 5 weeks but not later than 17 weeks.
Expect Further Losses For Stocks but 10-Year Forward Returns Look Better: Update December2022
- The average of S&P 500 for Nov-2022 was 3,917 (16% down from Dec-2021 average of 4,675) and is 385 points higher than the corresponding re-calibrated long-term trend value of 3,532.
- For the S&P 500 to reach the corresponding long-trend value would entail a 10% decline from the November average value, indicating that the S&P 500 is not significantly overvalued anymore.
- The Shiller CAPE-ratio is at 28.3, 10% higher than its 35-year moving average (MA35), currently at 25.8, forecasting a relatively high 10-year annualized real return of about 7.2%.
- The long-term trend indicates a forward 10-year annualized real return of 5.5%
- However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
Expect Further Losses For Stocks but 10-Year Forward Returns Look Better: Update November 2022
- The best fit line and prediction band were re-calculated from Jan-1871 to Sep-2022. This added over 10 years of data after July-2012, the end date of the previous regression analysis.
- The average of S&P 500 for Oct-2022 was 3,726 (20% down from Dec-2021 average of 4,675) and is 207 points higher than the corresponding re-calibrated long-term trend value of 3,519.
- For the S&P 500 to reach the long-trend would entail only a 6% decline from the October average value, indicating that the S&P 500 is not significantly overvalued anymore.
- The Shiller CAPE-ratio is at 27.2, only 6% higher than its 35-year moving average (MA35), currently at 25.7, forecasting a relatively high 10-year annualized real return of about 7.5%.
- However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
Expect Further Losses For Stocks And Very Low 10-Year Forward Returns: Update September 2022
- The average of S&P 500 for September 2022 was 3,853 (18% down from December 2021 average of 4,675) and is still 1,243 points higher than the corresponding long-term trend value of 2,610.
- For the S&P 500 to reach the long-trend would entail a 32% decline from the September average value, possibly over a short period.
- The Shiller CAPE-ratio is at a level of 28.4. That is 10% higher than its 35-year moving average (MA35), currently at 25.7.
- The CAPE-MA35 ratio is at 1.10 (down from the December 2021 level of 1.51), forecasting a relatively high 10-year annualized real return of about 7.1%.
- However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
- The historic long-term trend indicates a September 2032 value of 4,943; a 10-year forward real annualized return of only 2.5% (up from the December 2021 forecast of 0.2%).
An Upcoming Recession is Signaled by the Forward Rate Ratio
- Prior to recession the yield curve becomes inverted, as indicated by the Forward Rate Ratio between the 2-year and 10-year U.S. Treasury yields (FRR2-10) being less than 1.00.
- The FRR2-10 crosses 1.000 downward signifying that US economic activity is in the boom phase of the business cycle, nearing the next recession.
- The average lead time after FRR2-10 becomes less than 1.00 to the subsequent recession start was 14 months for the seven of the eight last recessions.
Expect Further Losses For Stocks And Very Low 10-Year Forward Returns: Update July 2022
- The average of S&P 500 for May 2022 was 4,040 (14% down from December 2021 average) and is still 1,469 points higher than the corresponding long-term trend value of 2,571.
- For the S&P 500 to reach the long-trend would entail a 36% decline from the May average value, possibly over a short period.
- The Shiller CAPE-ratio is at a level of 31.0. That is 21% higher than its 35-year moving average (MA35), currently at 25.6.
- The CAPE-MA35 ratio is at 1.21 (down from the December 2021 level of 1.51), forecasting a 10-year annualized real return of about 6.3%.
- However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
- The historic long-term trend indicates a 10-year forward real annualized return of only 1.9% (up from the December 2021 forecast of 0.2%).
Expect Further Losses For Stocks And Very Low 10-Year Forward Returns: Update June 2022
- The average of S&P 500 for May 2022 was 4,040 (14% down from December 2021 average) and is still 1,469 points higher than the corresponding long-term trend value of 2,571.
- For the S&P 500 to reach the long-trend would entail a 36% decline from the May average value, possibly over a short period.
- The Shiller CAPE-ratio is at a level of 31.0. That is 21% higher than its 35-year moving average (MA35), currently at 25.6.
- The CAPE-MA35 ratio is at 1.21 (down from the December 2021 level of 1.51), forecasting a 10-year annualized real return of about 6.3%.
- However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
- The historic long-term trend indicates a 10-year forward real annualized return of only 1.9% (up from the December 2021 forecast of 0.2%).
The iM-Inflation Attuned Multi-Model Market Timer
- Investment risk can be reduced by a multi-model market timer whose many components use different and uncorrelated financial and economic data, including inflation.
- This model seeks to determine effective asset allocation for risk-on and risk-off periods for equities considering the effect of inflation.
- Four risk scenarios are possible: risk-on & normal-inflation, risk-on & high-inflation, risk-off & normal-inflation, and risk-off & high-inflation. Different ETF groups apply to each risk scenario.
- From 2000 to 2022, switching accordingly between risk-related ETF groups would have produced an annualized return of about 39% versus 6.5% for buy and hold SPY.
With reference to Section 202(a)(11)(D) of the Investment Advisers Act:
We are Engineers and not Investment Advisers,
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