market outlook | september 30, 2019€¦ · market outlook | september 30, 2019 listen to the full...

Market Outlook | September 30, 2019

Listen to the Full Report

https://zoom.us/recording/play/6QkRa2498kDDtWzPoPuQUAecuBif6enqE2_VDQZ9zAqkvAmp195DY5ppsxkDF5yv?startTime=1569848334000

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Expansionary or Restrictive?

FEDERAL RESERVE ACTIVITY Is the economy growing or

shrinking?

ECONOMIC ACTIVITY

How expensive are assets? Where do

they stand relative to historical

prices?

VALUATIONSAre asset classes in positive or negative

trends? How are asset classes trending

relative to each other?

MARKET SENTIMENT

© 2019 WealthShield LLC. All Rights Reserved. This is provided for informational purposes only and should not be considered a recommendation to buy or sell a particular security. Past performance is no guarantee of future returns. Please see attached disclosures.

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Behavioral finance is the study of the influence of psychology on our decision making regarding investments, budgeting, and other financial aspects of our lives.

We notice flaws in others more easily than we notice flaws in ourselves. This can stem from issues of self awareness, but it isalso impacted by a couple of common cognitive biases we all struggle with: Blind Spot Bias and Naïve Realism.

The Blind Spot Bias is when we realize the impact biases can have on the decisions of others, but we fail to see the impact they have on our own decisions. Blind Spots occur when we are educating a client or prospect about the impact their cognitive biases may have on their investment decisions, but at the same time we are failing to realize the affect these biases may have on our own assessments.

Naive Realism is when an individual believes they maintain objective viewpoints devoid of bias, and in turn, anyone who disagrees with them must be biased. For example, an individual may believe that everyone should buy Bitcoin because it will replace all fiat currencies within the next decade or so; therefore, anyone owning a government issued currency is completely irrational to think they will survive the next global banking crisis. This is an example of Naïve Realism.

There are ways to limit the impact that these biases may have in any specific scenario. One way is to actively consider other peoples’ perspectives. Many individuals do not trust financial advisors, and while this likely isn’t a shared opinion among financial advisors themselves, these professionals should seek to understand the source of this investor distrust so they canadapt their process to address sources of skepticism that the investor may struggle with.


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Economic Activity● The ECRI WLI ticked up to 146.6 this week. Year-over-year, the four-week moving average of the weekly leading index is down -1.77%.● Final Real GDP came in quarter-over-quarter at 2% (after inflation), down from 3.1% previous.● U.S. PCE was flat month-over-month and is up 1.44% year-over-year.● Personal income was up 0.39% month-over-month.● Personal spending was up 0.14% month-over-month.● Durable goods orders were up 0.18% month-over-month.

Equity Markets● Equity markets finished the week down. Global stocks (VT) were down -1.06%.● Emerging markets were the worst performing market segment (EEM), closing lower by -2.33%.● Low volatility (SPLV) was the top performing equity factor, finishing up 0.58% despite the market closing lower on the week.● Consumer staples (XLP) was the top sector for the week, up 1.33%.

Intermarket● Stocks gained 0.27% against gold (VT/GLD) last week.● Copper finished higher against gold by 0.23%.● Lumber -2.62% fell against gold.● Stocks fell -1.39% against bonds (VT/IEF).

Fixed Income, Commodities, Currencies● U.S. 10-year yields closed lower by 5 basis points.● The U.S. Dollar was stronger by 0.64% for the week.● Livestock was the strongest commodity last week, closing higher by over 5%.● Crude oil finished the week lower by -3.75%.

After back to back weekly declines, short-term market breadth ($nya50r) has finally reversed in a negative direction. Long-term breadth remainssupportive up continued upside in equity markets. The action of the past week was supportive of defensive assets. The bigger picture isindicative of a continual tug-of-war between economic data and market prices.


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Chart of the Week: For the first time in 63 years, U.S. 10-year yields are higher than 100% of developed nations. This is evidence that the U.S. remains too tight from a monetary policy perspective.


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Chart 2: Nominal GDP has slowed considerably from the peak reached in Q2 of 2018, where growth peaked at almost 6%. The final Q2 GDP for 2019 was 4% (nominal).


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Chart 3: U.S. personal consumption expenditures were flat on a month-over-month basis. Year-over-year, PCE is up 1.44%, demonstrating a slowing trend.


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Chart 4: The four week moving average of the ECRI weekly leading index is still down -1.77% year-over-year. The weekly leading index has been negative on a year-over-year basis since late 2018.


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Chart 5: Global stocks were down -1.06% (VT). Emerging markets (EEM) were down the most, falling -2.33%.


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Chart 6: Consumer staples were up 1.33%, leading the broad market sectors. The worst performing sector was the healthcare sector, which was brought down by weakness in biotechnology shares.


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Chart 7: The low volatility factor ETF (SPLV) was the top performing and only positive factor etf on the week. High beta was the weakest, falling -2.21%.


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Chart 8: Yields dropped 5 basis points for the benchmark 10-year yield. The 3mo - 10yr yield curve remains inverted in the U.S. Emerging market bonds (EMB) was the worst performing bond market segment, losing -1.08%.


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Chart 9: Livestock ($GVX) was the top performing commodity market segment, gaining over 5%. Energy ($GJX) was the weakest, dropping -3.44%.


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Chart 10: The U.S. dollar rallied 0.64% for the week and gained against all major currencies except for the Australian dollar (flat).


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Chart 11: Volatility (VIX) closed back above its 40-week moving average. A breakout to new highs for volatility would be a major warning sign for equity markets and risk assets.


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Chart 12: Emerging markets were the weakest equity markets last week (EEM). EEM is back below its 40 week moving average and has made another lower high. A breakdown in emerging markets would be a clear warning signal for risk assets. Emerging markets need to break above recent highs and get back above their 40 week moving average. This could signal a cyclical rebound in the global economy.


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Chart 13: Emerging markets (EEM) are close to breaking to new lows relative to the S&P 500 (SPY). EEM dropped over -1.30% against the broad market last week. The continued weakness in emerging markets does not inspire confidence in a global economic recovery.


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Chart 14: Utilities broke out to new 2019 highs relative to the broad market (XLU/SPY). The trend is positive for utilities on a relative and absolute basis. A breakout above the 2018 highs against the S&P 500 could suggest upside in equity market volatility.


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Chart 15: Homebuilders have been strong over the last several weeks (XHB). Housing data has also been positive recently. Relative to the S&P 500, homebuilders are in a positive trend and above the 40-week moving average. Strength in homebuilding stocks is an encouraging sign.


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Chart 16: Low volatility equities remain in a strong positive trend (SPLV). The SPLV ETF hit a new all-time high again last week and finished up when the overall market was down. The strength in low-volatility equities is indicative of a defensive posturing by equity market participants.


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Chart 17: Lumber fell over -2.50% against gold last week. Technically, the lumber/gold ratio failed at resistance (old support), rejecting an important level. The ratio needs to hold support (recent lows) if there is any hope of upward momentum. Lumber is still in a negative trend relative to gold and is suggestive of higher volatility in equity markets.


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Chart 18: The U.S. dollar on a real trade-weighted basis, is close to breaking out above the highs reached during the 2015-2016 time period. The dollar remains in a strong positive trend.


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Chart 19: Bitcoin broke down last week (NYSE Bitcoin Price Index) and is close to testing its 40-week moving average. Bitcoin remains in a long-term positive trend, despite the major breakdown last week.


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Chart 20: The iShares India 50 ETF (INDY) broke above its rising 40-day moving average last week. India has shown some recent strength and could be starting a new positive trend. Positive momentum from India, despite the weakness in the overall emerging markets indices is a good sign.


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Chart 21: Short-term market internals, as measured by the percentage of stocks in the NYSE that are above their 50-day moving averages, reversed back into a column of O’s on the point and figure chart. This comes after the index failed to generate a “buy” signal whereby a column of X’s breaks above a previous column of X’s. In other words, the NYSE is getting overbought at lower and lower levels. Will market internals deteriorate among longer-term measures?


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The Good:

● Major indices still remain above 200-day moving averages.

● Breadth is still positive long-term time frames.

● Housing data has improved recently and home builder stocks are showing

relative strength.

The Bad:

● Market sentiment is negative, as the risk-free asset is outperforming both

international and domestic equities as well as high yield bonds in a majority

of time frames.

● Defensive factors and sectors outperformed offensive sectors last week.

● The U.S. dollar moved higher last week.

The Ugly:

● The 4-week moving average of the ECRI WLI is down -1.77% year-over-year.

● Small caps are in a negative long-term trend against large caps.

● Lumber is in a long-term negative trend against gold.

● Stocks are in a negative trend against gold and bonds.

Underweights:

Credit, Growth, Cyclicals, Small Caps, Developed markets

Overweights:

Treasuries, Low Volatility, Utilities, REITS, Technology, Consumer

Staples, Dividend Growth, High Quality


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Past performance is no guarantee of future returns. This is WealthShield’s current assessment of the market and may be changed without

notice. The visuals shown are for illustrative purposes only and do not guarantee success or certain level of performance. This material

contains projections, forecasts, estimates, beliefs and similar information (“forward looking information”). Forward looking information is

subject to inherent uncertainties and qualifications and is based on numerous assumptions, in each case whether or not identified herein.

This information may be taken, in part, from external sources. We believe these external sources to be reliable, but no warranty is made as

to accuracy. This material is not financial advice or an offer to sell any product. There is no guarantee of the future performance of any

WealthShield portfolio. The investment strategies discussed may not be suitable for all investors. Before investing, consider your

investment objectives and WealthShield's charges and expenses. All investment strategies have the potential for profit or loss.

Benchmarks: The index / indices used by WealthShield have not been selected to represent an appropriate benchmark to compare an

investor’s performance, but rather are disclosed for informational purposes. Detailed information regarding the indices is available upon

request. The volatility of the indices may be materially different than that of the portfolio.

WealthShield is a registered investment adviser. Registration does not imply a certain level of skill or training. More information about

WealthShield including its advisory services and fee schedule can be found in Form ADV Part 2 which is available upon request.

market outlook | september 30, 2019€¦ · market outlook | september 30, 2019 listen to the full...

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