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Market Behavior Offers Caution

CAMS Weekly View from the Corner – Week ending 2/21/2020

February 24, 2020

Thus far in 2020 the general tone of our Weekly Views has been the economy is fine in the here and now but markets broadly are quietly offering some caution.

This general observation has continued to unfold as market messages have continued to build in more of a cautious theme.  Most notably, the clear stand-out thus far in 2020, similar to late 2019, has been the Technology area.

Technology has been responsible for the bulk of gains in the S&P 500 in late 2019 and even more so thus far in 2020.

Historically, Technology leading the charge suggests a positive market backdrop – unless it is leading the charge by-and-large alone.  When this is the case, Technology leading becomes less positive because its leadership is not significantly broadening out to other areas of the stock market.

When we have the above development coupled with outperformance of “flight to safety” type investments that are outside of the stock market realm it offers more of a cautionary message from market participants.

This is known as inter-market analysis as we observe the behavior of various markets compared to one another.  This process offers valuable information as to the tone of the message of overall market participants.

$SPX, TLT - 2.24.20

Click For Larger View:

The above chart depicts the year-to-date returns for two polar opposite investment areas.

The black line (bottom line) is the S&P 500 while the blue line (top line) represents long-term U.S. Treasury bonds.

Per the chart, we see beginning 2020 long-term Treasuries had a tone of leadership compared to the stock market.  This then built momentum in latter January as stocks fell back to 0% return for the year while long-term Treasuries went even higher.

To that point in time this was enough to underline notably suspicious inter-market behavior.  This was then accentuated when stocks moved upward again in early February but long-term Treasuries held quite strong and never gave up their leadership.

With the above unfolding, as of Friday’s close, we now see even more diverging behavior as stocks are heading lower while long-term Treasuries have pushed upward even more.

The bottom line message here is caution.  Market behavior is offering caution as stocks and Treasury bonds diverge in opposing directions via their performance thus far in 2020.

Monitoring and investing to your risk level is the operable strategy at this stage.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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