Good morning. It is pre-market after a down day yesterday.
However, there are signs pointing to investors benefitting from a more RISK-OFF posture in the short term. Why? We saw a few Top Drivers yesterday, but it is about the stock price action sensed in our model.
We will be making a video today as we pull the story together. Here are quick thoughts:
1. Expected return to risk is down as indices show smaller, or even negative YoY performance.
2. The lower expected returns, lead to smaller CQNS scores, which indicates either less confidence or less alpha or edge in the optimized long portfolios.
3. The S&P 500 Equity Index ETF, SPY, is our benchmark. It has started moving back up the charts, from around the 210th best individual stock to around 150 today. That is a big move, and indicates indexing and safety in turbulent times.
4. The rise of the small cap stocks at the top of our list. The top 50 stocks all have a market cap of $41B or less, and some significantly less (less than $100M). Yes, small caps have been a poor performer in the past year, with the Russell 2000 Index ETF down almost 4% this past year. However, the stocks at the top of the list have been falling and by definition, their valuations are lower. For example, Rackspace Technology, RXT, has a market valuation of $262M. Lower valuations make stocks look attractive by raising their expected returns, especially if and when their fundamental performance improves.
On a personal note, we closed a key short in our portfolio two days ago, and regret that decision. To get back in today would require chasing a stock, as opposed to moving into a setup and waiting. We are not sure what we will do today in the markets.
We have more work to do this morning. TTYL.
Stock Market BLOG
President and Investment Advisor Representative