ZDGM Market Research Letter

Investing Environment Review and Outlook – Volume 84

Conditions for equities remain positive. Although investor positioning and valuations are higher since year end, and we are in a seasonally weak period of the year until October, the strong and broadening trend of the market higher combined with the trend of inflation to the downside is a powerful combination for more upside ahead. Our economic and inflation outlook indicators remain neutral and investor positioning is moderately long. While politics dominates media headlines, we remain focused on the objective, quantifiable, and predictive conditions we use for historical empirical analysis.

Russell 2000 Rally

Through 7/16 the Russell 2000 was up 11.4% in just 5 days. Of the 15 prior cases up 10% since 1979, subsequent returns for the S&P 500 and the Russell 2000 were mixed, with recent cases since 2009 positive, and prior cases negative. What made this month’s case unusual was the divergence with the S&P 500, up just 1.0% over the same period. There were only 4 prior cases with such a big 1 week divergence between the S&P and Russell. In May/June 2000 and again in March/April 2020. The 2000 cases marked the bull market peak for equities while the 2020 cases marked the bear market low.

CPI 3.0% and Falling: Bullish for Equities

While the Fed and many analysts focus on when and if the S&P will reach the magical Fed target of 2.0%, somewhat unnoticed is how bullish current conditions remain. Since 1950, when CPI headline inflation was falling, the S&P 500 returned 16.1% annualized (52% of the time). When CPI inflation was rising, the S&P 500 returned just 4.8%. For June, headline CPI was 3.0% down from the June 2022 peak of 9.1%. Our inflation outlook model remains neutral.

Conditions remain positive for equities and mixed for bonds and commodities. We are watching for a possible turn in the dollar which could have longer-term implications for industrial commodities and eventually inflation. Politics dominates media headlines, but mostly consists of conjecture. We will continue to analyze factual conditions instead and shift exposures as needed. Thank you for your support and please contact us with any questions.

 

IMPORTANT DISCLOSURES

This review and outlook report (this “Report”) is for informational, illustration and discussion purposes only and is not intended to be, nor should it be construed as, financial, legal, tax or investment advice, of Brenton Point Wealth Advisors LLC or any of its affiliates (“Brenton Point”). This Report does not take into account the investment objectives, financial situation, restrictions, particular needs or financial, legal or tax situation of any particular person and should not be viewed as addressing any recipient’s particular investment needs. Recipients should consider the information contained in this Report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments.
This material is based upon information obtained from various sources that Brenton Point believes to be reliable, but Brenton Point makes no representation or warranty with respect to the accuracy or completeness of such information. Views expressed herein are current only as of the date indicated and are subject to change without notice.
This Report contains certain forward looking statements opinions, estimates, projections, assessments and other views (collectively “Statements”). These Statements are subject to a number of assumptions, risks and uncertainties which may cause actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward looking statements and projections. Brenton Point makes no representations as to the reasonableness of such assumptions or the likelihood that such assumptions will coincide with actual events and this information should not be relied upon for that purpose. Changes in such assumptions could produce materially different results. Past performance is not a guarantee or indication of future results, and no representation or warranty, express or implied, is made regarding future performance of any financial instrument mentioned in this Report.
Any benchmark shown herein is shown for illustrative purposes only. No index benchmark is available for direct investment. It may not be possible to replicate the returns of any index, as the index may not include any trading commissions and costs or fees, may assume the reinvestment of income, and may have investment objectives, use trading strategies, or have other materials characteristics, such as credit exposure or volatility, that do not make it suitable for a particular person. This is not an offer or solicitation for the purchase or sale of any security, investment, or other product and should not be construed as such. References to specific financial instruments and to certain indices are for illustrative purposes only and provided for the purpose of making general market data available as a point of reference only; they are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities. Investing in securities and other financial products entails certain risks, including the possible loss of the entire principal amount invested, as the value of investment can go down as well as up. You should obtain advice from your tax, financial, legal, and other advisors and only make investment decisions on the basis of your own objectives, experience, and resources.
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Source of data and performance statistics: Bloomberg L.P. and Factset Research Systems Inc.
©Brenton Point Wealth Advisors LLC 2024

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