Short-Term Breakouts Confirm Market's Growth Over Income Bias

GROWTH IN ISOLATION

A July 2013 See-It-Market post outlined the three steps required for a trend change.   The S&P 500 recently broke the downward-sloping trendline below (step 1), made a higher low relative to the previous low (step 2), and went on to print a higher high (step 3).   The completion of these three steps tells us the odds of the correction low being in place have improved. 

GROWTH vs. INCOME

As outlined in a February 6 post, when market participants are concerned about the economy and a prolonged bear market, the conviction to own bonds tends to increase relative to the conviction to own stocks.  The current chart of stocks vs. bonds below continues to align with a market that prefers growth-oriented assets relative to defensive assets; it is hard to label the chart below concerning. 

WHY THE "I NEED INCOME" APPROACH MAY PRODUCE EXTREMELY DISAPPOINTING RETURNS

Obviously, it is reasonable to be concerned about generating income from your investments in retirement.  However, as shown in this week's video, in the current environment it may be vitally important to shift from a "I need income" mindset to a "I need to protect and grow my assets" strategy.   The video walks through a historical example using the actual performance of an "income- generating" portfolio.  

TECH vs. DEFENSIVE

A similar and constructive looking conclusion can be drawn when reviewing the ratio of technology stocks (VGT) to defensive bonds (TLT).  The ratio has not only completed the 3 steps needed for a short-term trend change, but also has printed a new all-time high. 

MORAL OF THE STORY

The stock market's long-term profile told us to be patient on February 6 when the market was in waterfall decline mode.   The longer-term picture is now being complemented by improvement in the shorter-term picture, which is an encouraging sign for stock market bulls from a probability perspective. 

Why The "I Need Income" Approach May Produce Extremely Disappointing Returns

TOTAL RETURN IS A MORE PRUDENT APPROACH

Obviously, it is reasonable to be concerned about generating income from your investments in retirement.  However, as shown in this week's video, in the current environment it may be vitally important to shift from a "I need income" mindset to a "I need to protect and grow my assets" strategy.   The video walks through a historical example using the actual performance of an "income- generating" portfolio.  

FAQ - TRADITIONAL STRATEGIES

FAQ - MARKET MODEL

History Says Rising Rates Are Bullish For Stocks

OTHER VOICES

In recent posts on rising bond yields and a bull/bear eye test, we noted rising bond yields are typically associated with bull markets and an improving economic outlook.  From time to time, it is helpful to hear the message from other sources. From MarketWatch:

How big of a headwind do high rates really represent? According to equity analysts, not big at all. In fact, they may even be a positive. Despite the recent turbulence, historically, “equities have gained significantly in periods of rising rates,” wrote Jodie Gunzberg, managing director and head of U.S. equities at S&P Dow Jones Indices, in an email. “Since 1971, the S&P 500 has gained about 20% on average in rising rate periods, has gained 8 of 9 times and has gained nearly 40% twice, with less than a 4% loss for its worst rising rate period.” Gunzberg’s analysis evaluated the benchmark U.S. index on a total-return basis.

From CNBC: 

"I want everybody to sit back, relax and let's look at this history," Acampora told CNBC's "Futures Now" on Tuesday.  He picked out a chart that he says proves the case.

"Stare at the lower left-hand corner of that chart carefully," said Acampora. "Look at the years between 1948 and 1962. Guess what — rates started turning up. Look at the chart up above it, the stock market went up. In other words, you can have rising stock prices with rising interest rates."

"There'll be a lot of volatility," added Acampora. "But, the secular bull market is alive and well. I think you've got years left even with rising rates."

S&P 500: NORMAL PULLBACK

Fibonacci retracements help us understand what a normal pullback typically looks like within the context of an established uptrend.  Even if we examine a relatively short timeframe dating back to August 2017, the S&P 500 remains near the typical retracements of 38.2%, 50.0%, and 61.8% of the prior A to B move.   If the trend remains in place, we would expect the S&P 500 to eventually make a higher high above the previous high, which is what bullish trends do by definition. 

If the levels above fail to hold in the coming days and and weeks, the bears will have taken a small baby step in relation to the bigger picture evidence outlined in the video below.

WHY EVERYTHING YOU KNOW ABOUT STOCKS AND BONDS IS ABOUT TO CHANGE

This week's video asks what can we learn about the stock market's long-term risk-reward profile by studying three charts:  (1) S&P 500 vs. 30-YR Treasuries, (2) Value Line Geometric Index, and (3) the NASDAQ.

Why Everything You Know About Stocks And Bonds Is About To Change

STOCKS VS. BONDS – THE SINGLE BEST SIGNAL

This week's video asks what can we learn about the stock market's long-term risk-reward profile by studying three charts:  (1) S&P 500 vs. 30-YR Treasuries, (2) Value Line Geometric Index, and (3) the NASDAQ.

INVESTING FOR INCOME IS A WHOLE NEW BALLGAME

All instruments that pay dividends have bond-like characteristics, including preferred stocks, MLPs, and REITS.  Therefore, the concepts in this week's video impact all yield-oriented or income-oriented investments.