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Weekly Market Update 11/17/2019

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Weekly Market Update 11/17/2019

The S&P 500 gained 0.88% this week with Friday's close at 3,120.38.  Friday's close is yet another all-time high weekly close, the third in a row for the index.  The index has now increased 6 weeks in a row, the first 6-week winning streak since October of 2017. 

This week was more of the same for the S&P 500 - early week choppiness, and strength to finish the week.  We traded down to 3,075.82 on Monday, and closed the week higher by 1.44%.  In fact, during this 6-week winning streak, the S&P 500 has recorded its weekly high on Thursday or Friday every single week.  We can't prove this means anything, but if we had to place a narrative around late-week strength, we could argue it's attributable to participants, collectively, demonstrating eager buying interest following the fundamental news flow that disseminated throughout the week. 

The S&P 500 confirmed its "breakout" this week, on both the daily and weekly charts.  The index closed 3% above both its prior daily and weekly closing high at 3,025.86.  Since trading up to a new all-time high on October 28th (14 trading days ago), there's been absolutely no eager selling pressure.  A complete and total lack of selling pressure is a hallmark of "bull markets"...just remember 2017.  In economics, it's not a lack of "supply" that leads to falling prices, it's a lack of "demand".  We're not witnessing a lack of "demand", we're witnessing a lack of "supply" via the lack of eager selling pressure across the collective actions of market participants.





So, what can the index do for an encore following a six-week winning streak that closes at an all-time high?  We'll call this a "6-week ATH price thrust", and the table below lists all instances of this occurring since 1970. 

We only have 11 prior instances, so this is certainly a crime of small numbers.  That said, the S&P 500's price action over the forward 12 weeks following a "6-week ATH price thrust" has been quite calm, at least historically.  The index's average maximum forward 12-week drawdown records at just -2.48%, with only two instances trading down by -4% or more from signal date close at any point over the forward 12 weeks.  Alternatively, its average maximum forward 12-week drawup from signal date close records at +5.95%.  This is suggestive of a range between ~3,042 and ~3,300.  To that we'd say, yes please.





As always, the future price of the S&P 500 will trade beyond the limits of imagination.  Exactly one year ago, nobody could have imagined December's crash.  And after December's crash, nobody could have imagined we'd be closing at 3,120.38 on Friday, November 15th.  Nobody truly knows what lies ahead, but there's no resistance left on the charts.  Naturally, we believe the path of resistance is to the upside.


S&P 500 Primary Trend - Up

The S&P 500 is presently higher by 2.73% for the month of November.  After closing October at a fresh new all-time high, the index hasn't spent a single tick below October's close here in the month of November.  As of today, November's price action has provided great follow-through to October's breakout.  There are eight and a half trading days remaining in November, and we're hopeful the index can sustain its lead and record a three-month winning streak. 

From a quantitative perspective, the primary trend for the S&P 500 is defined as up, or "bullish".  The index is trading comfortably above any and all widely followed moving averages, and has positive momentum across every measurable time period.  The index also sports relative strength against virtually all asset classes.  Therefore, most long-term investors are best served maintaining their target weight toward their equity allocation and relying on mostly passive, or strategic, investment methodologies.  It isn't until the primary trend can be labeled as down, or "bearish", that most long-term investors are best served under-weighting their equity allocation.  As always, individual investor attributes play a meaningful role, too.





Looking at the bigger picture, the long-term chart of the S&P 500 continues to mirror that of a high-intensity interval training session.  We've shared this analogy and chart before, but it appears the index is ready for its next repetition, or sprint.  We've emerged from what appears to be a cyclical "bear market" (as noted by the yellow highlighted regions below), and that suggests the resumption of our secular "bull market" is underway. 

These yellow highlighted regions have commonalities.  They mark time periods where the economy slowed, recession risk ascended, and global central banks unleashed the powers of monetary policy, whether through interest rate reductions and/or quantitative easing.  The economy and corporate earnings reignited, and the S&P 500 headed to the north. 

The old phrase "don't fight the Fed" is well known for a reason, and as of today the Fed is undefeated since late 2008.  We absolutely believe the Fed will take a loss one day, but we have no idea when that day is.  Until then, make as much hay as you can while the sun shines.





Healthcare Joins The All-Time High Party

In last week's Update, we wrote about the possibility of higher interest rates and a steeper yield curve into the future, thus hoping the financial sector joins the S&P 500's all-time high party.  Well, this week we saw the healthcare sector join the all-time high party. 

The S&P 500 Healthcare Sector Index (SPHC) was the top performing sector this week, gaining 2.41% with Friday's close at 1,126.71.  Friday alone saw the sector gain 2.21%.  Friday's close is an all-time high daily and weekly close for the index, finally eclipsing the prior all-time high from 2018.  SPHC is the second largest sector within the S&P 500, so relative strength here is a welcome sign. 

The more sectors within the index that join the party, the less the index becomes a one-trick technology sector pony.  The technology sector is the single largest sector within the S&P 500 with an allocation of roughly 23%, so it's easy to imagine the fate of the index being in the technology sector's hands.  Thankfully, the technology sector's been the LeBron James of the financial markets, and it's carried the load nicely.  However, LeBron's going to slow down one day, i.e., the technology sector can't carry the market on its back forever.  Someone else is going to have to step up and contribute, and this week suggests the healthcare sector may be ready to step up.





Importantly, the point here is not only that of the importance in sector performance as it relates to the S&P 500's future prospects, but to also illustrate the impact sector overweights and underweights can have on the performance of your stock/equity allocation across your portfolio. 

The chart below illustrates the performance of the the S&P 500 as a whole, the technology sector (SPT), the healthcare sector (SPHC), and the energy sector (SPEN) the last five years.  SPT has gained a whopping 123.93%, more than double that of the S&P 500's return of 53.01%.  SPHC has almost kept pace with SPX, gaining 43.75%.  However, take a look at the energy sector:  SPEN has declined -29.51% the last five years.  Contrary to your layman financial advisor's opinion, what stocks you own matters, all stocks are not created equal, and sector overweights or underweights are a path to "alpha" into the future.


Year-End Financial Planning Tidbits To Be Aware Of

Roth IRA Conversions?  Yay, or Nay?

If you're like most people, there's a good chance you have more money in taxable investment accounts (i.e., investment accounts that are potentially taxable upon the distribution of funds) than you do tax free investment accounts (i.e. investment accounts that are potentially tax free upon the distribution of funds).  A way to alter this ratio is to consider Roth IRA conversions!

Roth IRA conversions are not going to be ideal for many people, but for some it's a fantastically equitable strategy to execute.  Roth IRA conversions for 2019 have to be done by the end of 2019, so we encourage all of our readers to speak with their team of professionals - from their investment managers to their CPAs - to evaluate the applicability of Roth IRA conversions here in 2019.


0% Capital Gains Rate?  How?

Yes, there's actually a 0% capital gains rate.  This is mostly applicable for retirees, or those with low sources of taxable income, but a 0% capital gains rate absolutely exists.  Speak to your investment manager and CPA to understand if you can realize capital gains...without paying the tax man  (i.e., you're in the 0% capital gains rate).


A Strategy To Reduce Taxable Income

If you're looking to decrease your taxable income into year-end, consider increasing your contribution toward your employer-sponsored retirement plan (i.e., 401(k), 403(b) etc.).  Many plans will allow you to contribute as much as 100% of your salary toward your employer-sponsored retirement plan.  If you have sufficient cash reserves, you can use your cash reserves to meet your normal living expenses for the month of December, and defer the majority of your December salary into your employer- sponsored retirement plan.  This last minute push can potentially save you hundreds of dollars in taxes, increase your retirement assets, and replace low interest-bearing cash reserves with long-term investments.

Another option is to consider charitable donations.  Charitable donations may reduce taxable income in the year in which the donation was made.


Maximize The Interest On Your Cash

Traditional brick-and-mortar financial institutions continue to pay virtually no interest on monies held in checking and/or savings accounts.  However, online savings accounts or cash sweep options in brokerage accounts continue to pay competitive interest rates, mostly aligned with the yield on a 3-month United States Treasury Bill, which is currently 1.57%.  As we head into 2020, stop holding cash reserves at near 0% interest, and start holding it at closer to 1.57% interest.  Every penny counts.


Check your FSA Balances

Most flexible spending accounts (FSA) do not allow for meaningful monies to "rollover" from one calendar year to the next.  The use it or lose it nature of FSAs means you have to use it, otherwise you can lose it.  Don't lose it, that's essentially wasting money...


Happy Sunday!

Steve, Rick, and the AlphaCore team


This material is being provided for client and prospective client informational purposes only. This commentary represents the current market views of the author, and AlphaCore Capital in general, and there is no guarantee that any forecasts made will come to pass. Due to various risks and uncertainties, actual events, results or performance may differ materially from those reflected or contemplated in any forward-looking statements. Neither the information nor the opinions expressed herein constitutes an offer or solicitation to buy or sell any specific security, or to make any investment decisions. The opinions are based on market conditions as of the date of publication and are subject to change. No obligation is undertaken to update any information, data or material contained herein.

Past performance is not indicative of future results. Any specific security or strategy is subject to a unique due diligence process, and not all diligence is executed in the same manner. All investments are subject to a degree of risk, and alternative investments and strategies are subject to a set of unique risks. No level of due diligence mitigates all risk, and does not eliminate market risk, failure, default, or fraud. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable, or will equal the investment performance of the securities discussed herein. The commentary may utilize index returns, and you cannot invest directly into an index without incurring fees and expenses of investment in a security or other instrument. In addition, performance does not account other factors that would impact actual trading, including but not limited to account fees, custody, and advisory or management fees, as applicable. All of these fees and expenses would reduce the rate of return on investment.