Commentary
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Is Inflation Here to Stay?
In last month’s commentary, we highlighted the historically elevated level of debit balances in margin accounts. Although this metric is not incorporated into the models we employ since it doesn’t meet our criteria for being a precise timing tool, it does suggest an extreme in bullish sentiment that should give investors a reason to temper upside expectations.
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Margin Madness
In last month’s commentary, we highlighted the seasonal adage, “Sell in May and go away.” Adding to our concern this month is a bearish signal from an important measure of investor sentiment: the recent surge in the growth of margin debit balances.
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A Seasonal Spring Sell Setup for Markets?
Following a volatile start at the beginning of the month marked by a significant short-term pullback, the broad market was able to recover its losses and continue its ascent upwards with the S&P 500 reaching all-time highs by quarter’s end.
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Rising Rates Cause Investor Concern
At a time when equity valuations are within striking distance of record highs, accompanied by pockets of investor euphoria, there is growing concern the recent rise in interest rates could pose a threat to the ongoing bull market in stocks and high-yield bonds.
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Managed Income Strategy Celebrates 29 Years
Another year of positive returns is a gratifying way to mark the 29th anniversary of our Managed Income Strategy. We prefer to be modest about our accomplishments, but a performance history that encompasses nearly three decades with compelling risk-adjusted returns, warrants some celebration.
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Markets Continue to Advance
A widespread uptick in COVID-19 cases in the U.S. and elsewhere is triggering more severe lockdowns as the year-end holiday season approaches. Ordinarily, one would expect markets to be under pressure in response to suppressed economic activity but that is certainly not the case now.
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High Yield Bonds Come to Life
Much to our benefit and to the surprise of most, high-yield corporate bonds are showing marked strength. This despite an economic backdrop that would suggest investors should be wary of the asset class.
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Cautious Optimism Is Still Our Watchword
In our previous monthly commentary, we noted the dominance of the high-profile market leaders (Apple, Facebook, Tesla, etc.) was beginning to wain and a broadening of the market advance was needed to sustain the bull market.
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Reasons for Cautious Optimism
So far, the spectacular recovery of the equity market from the panic low in late March has been overwhelmingly powered by a narrow group of high-profile technology names.
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Markets March Forward to the Surprise of Many
Despite the unlikelihood of a return to anywhere near normal economic activity anytime soon, the ongoing advance of risk assets continues to defy conventional wisdom.
