With a nod towards broad portfolio diversification, here is a quick summary of what I am seeing — organized by investment category (equity markets, fixed income and liquid alternatives):
- Equity Markets: Investor sentiment remains extremely optimistic (short-term bearish for equities), Don’t Fight the Tape or the Fed moved recently from a +1 to 0 (now neutral on equities). The 13/34-Week EMA trend indicator remains bullish. The CMG NDR Large Cap Momentum Index is nearing a buy signal. While valuations remain extreme (overvalued), trend evidence suggests a neutral to positive view on equities (hedged).
- Fixed Income: High Yield remains in a buy signal or uptrend and the Zweig Bond Model remains in a buy (bullish on high quality fixed income).
- Liquid Alternatives: The CMG Opportunistic All Asset ETF Strategy is currently allocated 73% to equities and 27% to fixed income. Recent additions include technology, biotech and Emerging Market equities. For weightings by asset class, please see the pie chart below.
Several additional thoughts: Investor sentiment remains extremely optimistic (which is generally short-term bearish for equities). Due to high valuations and the aged nature of the cyclical bull market, I favor underweighting exposure to equities (hedged). I favor an endowment-like portfolio with approximately 30% exposure to equities (hedged), 30% fixed income (tactically managed) and 40% to liquid alternatives (e.g., tactical all asset, managed futures, global macro and gold).
Here is a not-so-fun fact: According to Ned Davis Research, the S&P 500 has gained just 2.41% annualized per year since December 31, 1999 (see Don’t Fight the Tape or the Fed indicator below). It has gained just 4.45% annualized per year since December 31, 1997 (see Volume Supply/Demand indicator below)…. by Steve Blumenthal
For charts, analysis, and commentary see the rest of the story in Trade Signals: Sentiment Too Bullish: S&P 500 Annualized Return Since 12/31/99 to Present just 2.41% (Wow!)
The current opinions and forecasts expressed herein are solely those of Steve Blumenthal and are subject to change. They do not represent the opinions of CMG. CMGs trading strategies are quantitative and may hold a position that at any given time does not reflect Steve’s forecasts. Steve’s opinions and forecasts may not actually come to pass. Information on this site should not be used as a recommendation to buy or sell any investment product or strategy.