📑 Research Notes for 2022-06-06
This week, we look at the nature of bear market rallies, the importance of return sequences, the retail rush for Treasuries, and rising market correlations.
We conduct extensive investment research and share the most interesting content that we come across every week. Here is a curated list of this week’s top observations.
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Rallies to the Bottom.
Though last week’s 6.6% gain may have you feeling some relief, it’s too soon to tell if we are out of the woods yet. Unfortunately, one week isn’t enough time to differentiate a false rally from a true recovery. In fact, of the 18 rallies highlighted across the four market crashes listed above, the average length of the typical rally was two to three months.
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The Sequence of Returns.
Each of these graphs is the actual returns of the Wilshire 5000 (16%, -5%, .01%, etc.) but arranged in a different sequence. A random order (yellow) offers an extra 40% over real life. It’s a luck of the draw as they say.
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Main Street Investors Break Records in Rush for U.S. Government Bonds.
Lured by higher interest rates and spooked by turmoil in stocks, investors poured a net $20 billion into mutual and exchange-traded funds that focus on buying ordinary U.S. Treasurys over the four-week period ended May 25, according to Refinitiv Lipper. That marked the largest infusion over a four-week span in records going back 29 years.Â
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Lockstep Stock Market Is Forcing Everyone to Be a Macro Trader.
Day-to-day odds-making on whether the Federal Reserve will cause a recession has become the only thing that matters in equities. One day feast, next day famine -- obsession with a single input, the economy, has driven measures of correlation among individual stocks to the highest since the coronavirus crash. Whacked around by government data and bond yields, the S&P 500 has now posted intraday swings of 1% or more in 31 straight sessions, the second-longest streak in a decade.
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Last Week’s Market Performance Heatmap
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Curated by Joseph Lu, CFA®
Joseph is the founder and managing director of Conscious Capital Advisors and a CFA® Charterholder.
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The information presented in this newsletter is for educational purposes only and is not a solicitation or recommendation for any specific security, product, service, or investment strategy.
Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with a qualified financial advisor, tax professional, or attorney before implementing any strategy or recommendation you may read here.