• Goldman Sachs reported that only 25 stocks accounted for 58% of the index’s 2021 gains, including reinvested dividends, through Dec-9-2021.
• One can verify the accuracy of this list by ranking the S&P 500 stocks on the factor “Market Capitalization x 1-year Rate-of-Change”, with higher being better.
• Backtesting to Jan-2000 shows that buying the 25 highest ranked stocks every year at the end of December would have approximately matched the performance of SPY over the backtest period.
• However, investing similarly in the 25 highest ranked stocks of the lower two terciles of the ranked S&P 500 would have provided over 3-times the total return of SPY.
• The list of 25 S&P 500 stocks to hold during 2022 is given in Appendix-2, which is expected to provide higher returns to Dec-2022 than the Goldman Sachs list.
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• Consumer Sentiment, when expressed as the difference in return of the Consumer Staples- and the Consumer Discretionary sectors, can provide risk-on and risk-off signals for equity investment.
• Also a reasonably reliable risk indicator is the Cyclically Adjusted Risk Premium (CARP), defined as the inverse of the Shiller CAPE Ratio (CAPE) in percent minus the 10-year note yield.
• The Consumer Sentiment Timer can be improved by including the value of the CARP in its rules to provide more profitable risk-on and risk-off signals for equity investment.
• From 5/1/1999 to 10/15/2021 the Consumer Sentiment & CARP Timer, when accordingly switching between ETFs SPY and IEF, would have produced 18.5% annualized return with a maximum drawdown of -27%.

• The difference in return of the Consumer Staples- and the Consumer Discretionary sectors can provide risk-on and risk-off signals for equity investment.
• Four time series sets are used: ETFs XLP & XLY, Portfolio 123 Specialty SP1500 Consumer Staples & Consumer Discretion, Aggregate Series Non-Cyclical & Cyclicals, and ETFs RHS & RCD.
• Investment in equities is signaled when the 15 week return of the discretionary sector outperformed the staples sector’s return.
• From 5/1/1999 to 10/1/2021 this strategy, when accordingly switching between ETF SPY and ETF IEF, would have produced a 14.9% annualized return with a maximum drawdown of -17%.

• This strategy combines the iM-3 Position SuperCombination Timer and the iM-ModSum/YieldCurve [(SPY-IEF) – GLD] Timer models equally weighted.
• A 2000-2021 backtest shows that this combination strategy would have outperformed the SPDR S&P 500 ETF Trust (SPY), showing an annualized return of 23.9% versus 7.2% and with a maximum drawdown of 15.7% versus 55.2% for SPY, respectively.
• The backtest also shows that this combination would have since 2000 produced only positive calendar year returns and would also have outperformed SPY over each calendar year.

• The average of S&P 500 for July 2021 was 4364 (previous month 4238). This is 1894 points higher than the long-term trend value of 2470.
• The current percentage difference of S&P 500 level relative to the current long-term trend level is 77%, a value not exceeded in the recent past since 2001.
• The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a level of 37.6. That is 50% higher than its 35-year moving average (MA35), currently at 25.1.
• The CAPE-MA35 ratio is 1.50, forecasting a 10-year annualized real return of about 3.9%. Should the CAPE-MA35 ratio increase further, then 10-year forward returns will be even lower.
• The historic long-term trend indicates a 10-year forward real annualized return of only 0.7%.

• This model only holds fixed income asset class ETFs, never equity. It significantly out-performs the S&P 500 ETF (SPY) over longer periods by strategically switching holdings for risk-on and risk-off situations.
• It uses three previously published market timing algorithms, the ModSum Timer, the YieldCurve Timer, and the Cyclically Adjusted Risk Premium (CARP) to define risk-on, risk-off, and hedging periods.
• During risk-on periods, as indicated by the ModSum Timer and the CARP, the model holds the SPDR Bloomberg Barclays Convertible Securities ETF (CWB).
• During risk-off periods the model switches to iShares 20+ Year Treasury Bond ETF (TLT).
• Near, or during recession periods, as indicated by the YieldCurve Timer, the model is hedged with the iShares 7-10 Year Treasury Bond ETF (IEF), irrespective of the risk situation.

The strategy described here demonstrates that contrary to the accepted believe investing in fixed income can produce superior returns to equity investments.  This model uses three previously published market timing algorithms to define risk-on, risk-off, and hedging periods.
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• The accepted thinking is that the additional risk inherent in stocks is reflected by a “Risk Premium”, being the difference of S&P expected earnings yield and the 10-year note yield.
• An alternative measure of risk is the Cyclically Adjusted Risk Premium (CARP), defined as the inverse of the Shiller CAPE Ratio (CAPE) in percent minus the 10-year note yield.
• The value of the CARP and directional trend of the CAPE can be used to profitably time investments in risk-off and risk-on assets and avoid major stock market losses.
• Prior to the Financial Crisis of 2007-2008 the CARP indicated a “risk-off” asset allocation, in contrast to the S&P Risk Premium which signaled that stocks were undervalued.
• More recently, at end of February 2021, the CARP has signaled the end of embracing risk-on assets and a switch to risk-off assets.

The S&P Risk Premium and below statement comes from Portfolio 123:
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• This Combination Timer seeks to find optimum investment periods for equities. It uses five market timing algorithms, previously described, to periodically invest in three ETFs from a possible 16 available.
• It can hold equity, gold, and fixed income ETFs depending on stock market direction as indicated by a combination of market timers.
• A backtest from January 2000 to July 2021 shows an annualized return of 24.5% with a maximum drawdown of -23% and low annual turnover of 140%.

• The average of S&P 500 for May 2021 was 4168 (previous month 4141). This is 1718 points higher than the long-term trend value of 2450.
• The current percentage difference of S&P 500 level relative to the current long-term trend level is 70%, a value not exceeded in the recent past since August 2001.
• The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a level of 36.8. That is 47.5% higher than its 35-year moving average (MA35), currently at 25.0.
• The CAPE-MA35 ratio is 1.48, forecasting a 10-year annualized real return of about 4.0%. Should the CAPE-MA35 ratio increase further, then 10-year forward returns will be even lower.
• End of May the 12-mo As Reported Earnings per share for the S&P 500 was $138.96, up from February’s $88.10. Should this trend continue then stocks may show further gains.