I wanted to discuss with you today about possible green shoots that we are starting to see in the markets. So many times we are asked by clients about just going to cash and sitting out the pullback in the markets. I touched on that last week, but it’s worth another look.
The truth is nobody KNOWS the future. We may think we know how things are going play out, but we don’t KNOW what will happen. So, short of that we either ride the ups and downs or we try to manage the downs to minimize the drawdowns in the portfolio. We use many things like money flow, relative strength, traditional charts, and so on. But none of those tell the whole story. As a matter of fact, the market (a sum of all investors taken together) is the only thing that can predict the market, and the market typically looks ahead 6 to 9 months.
It's only in hindsight that we can KNOW what the issues were. But that doesn’t help us with investing now. Getting investment advice from the news headlines is typically a losing fight, because they are looking at what is right in front of them not what is out 6-9 months.
It’s likely that the market is telling us that around the 3rd or 4th quarter of this year, things will slow down, and we may be in a slight recession. Will the market get worse than it is right now? Maybe. Nobody really KNOWS what that will look like. I have my opinion about how this will play out, as does everybody else. The difference is I don’t believe going to cash is the answer (nor is “buy and hope”).
It’s interesting, the market is up today (Monday), but the MAG 7 is down. That is something that I would expect to continue to play out over a longer period of time.
Comparing that to our favorite S&P 500 index (RSP).
You can see a little divergence over the last few days of the chart. Does that mean things will immediately turn around? No, of course not. But might it be some green shoots? Possibly. We’ll have to see how things play out.
Here’s how our money flow data is looking:
It’s a confusing chart, but what I want to note is that you can see what are called “positive divergences.” These don’t mean we’re at the end of a downturn, but they do indicate we may be closer to the end than most people think (or feel).
In addition to green shoots popping up in the US, it’s possible that the market is rotating from the MAG 7 to small and mid-cap stocks, as well as international companies. Here’s what our relative strength matrix looks like in the month of March.
Sorry, that’s really small print, but US relative strength has gone from 320 to 303 in the span of a couple weeks. International equities have gained a few spots (8 to be exact) and fixed income has gained 5. That is sort of what I would expect if the market starts to rotate.
Again, it’s early with respect to green shoots. But these are some things that we are looking at for this correction or slowdown to conclude (because it will). It’s also possible for the markets to have a “freeze” where all the green shoots die out. All of these time periods end, and a new one always begins; what’s the old saying, it’s time in the market not timing the market.
That’s it for this week. If you have any questions or are losing any sleep, please reach out and we will be happy to have a conversation.