The Sign

The Sign

You can't make this stuff up. This week was positive on almost all fronts. Jay Powell helped that a little with his dovish add of the word "any" to the commentary. Equities took off, so did bonds, and most commodities. Oddly Bitcoin did not join the party. All this and a very large bull made its way onto the tracks at Newark, New Jersey's Penn Station, which is a large NY metro area commuter station. Had I not used the Rage Against the Machine song, Bulls On Parade, as a title already, it would have been a good one. I thought this could be seen as THE sign that its time for "risk on". There is a verse in the Ace of Base song by the same name that I liked for this market.

Source:?

Let's look at some charts showing just how widespread the positive returns were. Almost all equities indices were up on the week. The thing to look at is the outperformance of the equal weight indices in the US.

Bond yields were off with the exception of shorter term Japanese Government Bonds.

Commodities were strong. Lead by metals with ags underperforming the group. While Energy was up as a whole, Nat Gas continues its slide. This marks the sixth straight week its been down.

One more point on equities, we're starting to see new highs again. NYSE stocks saw a daily average of about 500 new highs last week and the NASDAQ names roughly 300. Looking at the net of new highs minus new lows along with the outperformance of the equal weight indices, it looks as if the Mag7's dominance has taken a pause in US large caps. Actually, let's take a look. Looking at a contribution report from LSEG Workspace, we can see that those names accounted for only 6% of the Russell 1000 performance last week, but have been 53% in YTD performance.

LSEG Workspace Portfolio Analytics

Best of the Week

James Aitken gives a masterclass in financial markets. James is known as the Financial Plumber. He gained the knowledge to be given this title by having a relentless curiosity for how things work and a passion for reading. He started in FX Sales, which he described as the essence of providing info on who's doing what, where, and why they were doing it. After the GFC though, he said not many still cared about balance sheets and financial plumbing. The conversation touched on many topics, but I found three more intriguing. The first of those three was the conversation around the US economy. Coming out of COVID James says the household incomes in aggregate are in good shape and labor market is still tight. This means that the pass through from Fed hikes are less impactful. James also noted that the US, and especially the UK missed an opportunity to issue long duration bonds, but most individuals and corporates did not. Now governments are stuck with higher rates and less indiscriminate buyers. Government costs on interest should go up by it may take many years for that to become a problem. The second topic is that Japan is determined to make Japan great again. This would attract more of the world's capital to Japan. Taking the cap off JGB rates would offer Japanese investors, who are the anchor investors in Treasuries, CLOs, and other assets, a higher rate at home and thus moving those assets home could move world rates higher. I've shared some charts looking at the last five years in Japan. Equities, Bond Yields, and CPI growth has moved higher. The Yen has been very weak, but looks like it's attempting to bottom. The other point I'll share was the conversation around China. James thinks too many want to think either China takes over the world or it flops. He thinks they will muddle along and be somewhere in the middle. That's not all that crazy, but the point he brought up that I didn't see reported much on was that Xi upped the anti with regards to Taiwan. He's supporting a couple of groups that are sympathetic to China. They're trying to win the election and he essentially told Biden that if he can win it back peacefully, you'll just need to accept it.

Listening time: 81 minutes

The Plumber

Best of the Rest

In this episode of Flirting w/Models Corey Hoffstein and Bin Ren bring to life the move from structured time series data, which most quants/systematic shops are used to, into unstructured text with the help of AI and tools like ChatGPT. Bin was at the forefront during the creation of Cloud computing and has been looking for ways to make combining access to high quality data, coding experience and market knowledge a bit easier. This is definitely not a conversation to miss if you're interested in data analysis, quantitative modeling, or alternative data. Listening time: 76 minutes

Bin Ren – text2quant

On J.P. Morgan Asset Management's Center for Investment Excellence podcast, David Lebovitz & Jared Gross give some good insights on how they feel that different assets will perform in 2024. The guys run through some segments of the major asset classes and walks through their prospects. A few points that caught my attention were their positive outlook on Commercial Real Estate, thoughts that Private Credit was over allocated, and that high yield could see the best move in 2024. Staying on high yield, they thought spreads haven't risen at roughly 400bps. High Yield is skewed to higher quality as IG Bonds have started to move towards BBB. There's going to be a ratings migration and that should allow HY managers to capture Fallen Angels and own rising stars. Below I took a look at some of the JP Morgan High Yield Bond index returns year to date. It's been a good year when compared to the wider Bloomberg Global Aggregate. Listening time: 30 minutes

The 2024 Asset Allocation Draft

One for the Road

Brent Donnelly shared this paper abstract on why subtraction is overlooked and can lead to great improvements than adding more. I've seen it a number times before. The most common is with a change in personnel. Even uber talented individuals can detract from a team. Addition by subtraction is not something we often think of.

Why Subtraction is Overlooked

Thanks for your attention this year. This will be the last post of the year, as I take some time off for the holiday. I'm wishing you and your loved ones a happy and health holiday season.

Remember, as Buddy the Elf says, "There’s room for everyone on the Nice List!”

Michael


Stephen Clapham

Analyst | Investor | Author | Podcast Host I teach investors to be faster and better at interpreting financial statements.

11 个月

Thanks for the kind mention. James Aitken is super smart and the podcast has been really popular.

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