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Wrapping up 2019 – Still No Stress

CAMS Weekly View from the Corner – Week ending 12/13/2019

December 16, 2019

This is the final Weekly View for 2019.  With this we thought it timely to wrap up with an overall observation that we have consistently strewn through our installments all year long.

That is the view of the overall economy as seen by collective market participants via their messages through market action.

We last touched on this particular market message back in August.

The St. Louis Federal Reserve Bank publishes a Financial Stress Index that gives us a sense of how much stress is registering in our economic system through various market based measures.

This Index is comprised of eighteen different market based measures in order to get a sense of how collective market participants are interpreting our current economic landscape via various market based relationships.

With the above notice the obvious focus here; markets and collective participant’s message through said markets.


FRED - St Louis Fed Financial Stress Index - 12.16.19

The above chart depicts the Stress Index dating back ten years for a broad perspective.  This Index is constructed in that zero is viewed as representing normal financial market conditions.  A value below zero represents below average financial stress conditions or higher than if above the zero line.

Interestingly, in a year that was consistent if not constant with a collective narrative of “recession is imminent” the red arrow begins its clear downtrend from one year ago.

Offered another way, as the collective narrative was riled up with recession obsession collective market participants, via the above stress index, were consistently less concerned than they were one year previous.

The current level remains well below the zero line equating to below average stress.  Lower lows are not a requirement but on-going subdued stress levels will offer a landscape of economic health in the U.S.

Importantly, this is not a gauge that offers an outlook for the near-term trading pattern of the stock market but rather is meant to gauge the economy and its prospects for growth or lack thereof.

Historically, market participants catapult this Stress Index to very high levels when they feel economic issues are imminent.  Currently, they are offering an on-going expectation of economic growth in the U.S.

See you in 2020!!

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

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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