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Reconnecting & Revisiting

CAMS Weekly View from the Corner – Week ending 4/29/2022

May 2, 2022

In the front part of April we shared a stock market disconnect that offered a probability of coming issues in light of the tremendous out-of-nowhere disparity between two well recognized indices.  They were the Dow Jones Transportation index and the S&P 500 equal weight index.  The equal weight for the S&P 500 simply means, in this Index, all five hundred companies impact the performance of the Index the same. To get a sense of the disparity below we post the same picture as shared back in early April.

Click For Larger View:  https://schrts.co/WwMZruhs

The disconnection offered that ultimately one of two things would occur.  The first would be a positive if it were to happen while the second would be a negative relative to the forward looking health of the stock market at large.  The first scenario Transports would move higher after a radical drop to reconnect with the S&P 500.  In the second scenario the S&P 500 would drop to reconnect with the Transports Index.  Below we look at a current day view of these two.

Click For Larger View:  https://schrts.co/FfFMZhwt

We can see how the S&P 500 (black line) has fallen rapidly to reconnect with the general trend performance of the Dow Transports Index.  Like the Transports rapid fall in early April the S&P 500 has now also incurred its own rapid drop, albeit a few weeks later.  The S&P 500 Equal Weighted Index above is now at its lowest point for 2022 begging the question: What’s next?

Click For Larger View:  https://schrts.co/EmAnxxph

Continuing with the theme of this edition, “reconnecting & revisiting,” above we share a picture from an edition that was shared the end of January.  This represents small sized companies within the broad stock market.  The point then as well as now is small companies are historically more vulnerable when the stock market begins to have issues and many times act as an early warning of coming issues. In a broad sense they certainly have acted as an early indicator of concern as they began to become notably absent in trend for the bulk of 2021 and then in 2022 began to put downside on early and rapidly. As stated, the above is the same picture we shared back in January although updated to current day whereby we emphasized price needed to hold above the red line.  As weeks unfolded, per our blue arrows, attempts were made to go below the red support line but failed and moved upward.  All told though, this barometer continued to struggle and in so doing offered the stock market was not healthy and vibrant. Current day, per our blue circle, this small company index (Russell 2000) has failed the red line and is breaking down further offering more problems for the stock market may very well be ahead of us. One of Those Weeks In recent months, week-by-week, we have shared a consistent drumbeat of market messages that offered issues for both the stock market and the bond market on a forward looking basis.  The past couple of weeks have added to that in droves to the point that this edition became a “dartboard match” if you will relative to the plethora of topics we could have shared. In a larger sense we cannot help but note the messaging coming through market observations as to whether we are now beginning to lean into an economic recession out there on the near-term timeline. “Junk Bonds” (a.k.a. High Yield bonds) have broken down further from levels of concern that we had shared in recent editions as well.  High Grade Corporate bonds are literally imploding to the downside also. The stock market is sending a wealth of additional messages of concern with the Financials, for example, led by Banks and Broker/Dealers are putting in their lowest points for 2022 which never suggests a good forward looking scenario when this group is performing so poorly.  Furthermore, the NASDAQ 100 (largest 100 companies making up the NASDAQ) have also put in new low points for 2022. Lastly, the most recently released measure for economic growth (GDP) actually contracted to the tune of negative 1.4% while expectations were for positive growth ranging in the 1-2% range.  That was yet another negative surprise and market participants have been and are continuing to take note. Markets across-the-board are challenging and are sending messages of caution if not outright concern.  Bottom line – caution continues to be warranted. I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Footnote:

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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