Comfortably Numb: Whipsaws Continue (for Now)
US500
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The developing uptrend we were seeing in long-term Treasuries over the past several weeks got quickly and decisively turned back by a labor market that is showing few signs of getting weaker in the near-term. While I don’t think it necessarily increased the likelihood that the Fed has multiple rate hikes left in it, it brought back shades of the 2022 bond bear where long-term Treasuries were unable to rally as long as the Fed maintained a hawkish stance.
How to Interpret the Signals
Within each strategy, there is a risk-on and risk-off investment recommendation, with the risk-off option being the more conservative of the two. When a particular signal indicates that investors should be risk-off, for example, subscribers should consider investing in the risk-off option and avoiding the risk-on option. The opposite, therefore, would be true when the signal flips to risk-on. In each strategy, you’d always be invested in one option or the other.
Here’s how to read the scorecard for each strategy:
Risk-On Vs. Risk-Off Strategies
Some of the strategies will be more aggressive than others. The “Leverage For The Long Run” strategy, for example, uses the S&P 500 and 2x-leveraged S&P 500. The more conservative “Lumber/Gold Bond” strategy, however, uses intermediate-term Treasuries and the S&P 500. In every case, a risk-off signal indicates that you should be invested in the more conservative of the two options, while a risk-on signal indicates you should be invested in the more aggressive one.
Short-Term Signal: Utilities/S&P 500 Ratio
Target Investor: Short-term traders with a higher risk tolerance interested in using an equity momentum strategy to anticipate changes in market risk tolerance.
Current Indicator: Risk-On
Strategy: Beta Rotation – Example: Invest in SPDR® S&P 500 (NYSE:SPY) over Utilities Select Sector SPDR® Fund (NYSE:XLU)
S&P 500 Vs. XLU
Short-Term Signal: Long Duration/Intermediate Duration Treasuries Ratio
Target Investor: Short-term traders with a higher risk tolerance who want to use the activity in the U.S. Treasury market to judge overall risk levels.
Current Indicator: Risk-On
Strategy: Tactical Risk Rotation – Example: Invest in SPY over Long-Duration Treasuries Vanguard Long-term Treasury Index Fund Admiral Shares
Indicator for Long Intermediate Duration
