By Jeffrey Cohen, Investment Advisor Representative
US Advanced Computing Infrastructure, Inc.
The highlights from yesterday was the reversal in US Treasury fixed income securities that are longer-duration. 10-year and 30-year notes/bonds were falling the day before, fell in the morning yesterday, then boom, recovered after lunch. This changes the dynamic because as bonds are worth more...this removes a big stressor in the markets.
This morning we see futures flat on US equities, however our model, our CQNS UP run model, is still bullish and suggesting a few very risky sectors to invest in to beat the S&P 500. Bitcoin-related, semiconductors, software and eCommerce. Internet related growth stocks. The model was right yesterday, and today it picks similar stocks. The model suggests jumping into risky stocks if you believe the overall market is expected to rise 10% over the next year (inclusive of dividends).
Remember though, this could be a bear market rally and be short lived while most of us are on vacation in August. There are fewer participants and liquidity is lower. This is the time when market players can make significant profits. It is like trading pre-market.
The new high - new low indicator is still negative (more new lows than highs), but is moderating and close to 1:1.
In the stocks we looked at today, the core economy of discretionary expenses is lower, and companies that benefit from when we have modest means (inflation, fewer jobs, stagflation), were higher.
In mid-June, the US Equities and Fixed Income market changed. It started going up again.
This has been a healthy rally, rising ~15% depending on the index. US Treasury interest rates have fallen in light of a diligent and hawkish Federal Reserve Bank. Volatility of most stocks has stabilized, albeit at a higher level than before. Volatility of the S&P 500 continues to rise.
The VIX started to fall in Mid-June, and has not looked back. The cost of insuring against a market fall is lower, even though the market has gone higher. It is a matter of perception in the market...stocks are rising and risk is back on.
In a recent video I had said "you can be right, or you can be wrong and rich in this market.' What I meant is that most people think the market should be falling further. They reflect on economic, political, fiscal and monetary conditions and say Rome is Burning. Sell stocks, go short, bet against the market.
However, while this is happening the riskiest sections of the market have been rising, and stocks suggested by our model are already up 25% to 50% already since mid-June. Our model has done a 180 degree turn with the change of one key assumption. That model run was amazingly correct yesterday, and we made our optimistic video, and even wore a Chicago Bulls hoodie to support it (in pre-market before we saw the results).
All we did was suggest that investors in the market expect to make money. They expect to make 10% over the next year, inclusive of dividends. That is all we need to push the market higher. 10% expected returns.
By comparison, when we had 5% returns to risk assets (as the market was in free-fall), the model had us picking the more conservative sectors of the market, including consumer discretionary stocks, insurance companies, insurance brokers, B2B industrial firms and the like. In other words, low BETA and high profit companies that can weather the storm.
We ran the model again last night with the 10% 'override' assumption on expected returns. The model again picked a risky basket of stocks to invest in.
Good luck to all.
Check out our video this morning.