Day Hagan Catastrophic Stop Update November 11, 2024
The Catastrophic Stop model increased to 67.9% from 60.7% last week. The Internal Composite is bullish, and the External Composite is neutral. The model continues to recommend a fully invested position.
Figure 1: Catastrophic Stop Model vs. S&P 500 Total Return Index.
The model’s increase resulted from several indicator shifts (one bearish and two bullish):
1) Sentiment moved from neutral back to excessive optimism (a headwind for equities), 2) High-yield and Emerging Market bond breadth turned positive (using a 21-day window), and 3) ACWI breadth flipped positive (based on a 50-day window).
Figure 2: Shorter-term sentiment measures, on average, are back to Excessive Optimism levels. This is a near-term headwind.
Figure 3: The better breadth within the high yield and emerging market bond markets indicates “risk-on.” A positive underpinning.
Figure 4: Global equity breadth is also recovering.
U.S. equity markets are entering a period of bullish seasonality. We don’t dismiss the fact that historically, equities have done well during November and December (and often into January). However, we view seasonality (cycles) as a “condition” rather than a “trigger” for a specific investment. Note the difference in results between this year’s Cycle Composite and market path vs. 2008.
Figure 5: For 2024, the S&P 500 is generally following the Cycle Composite.
Figure 6: 2008 was a different story. The moral of the story is that this is why we focus on the weight of the evidence—not every indicator works all the time.
Following President-elect Trump’s win, we sat down to identify areas that may experience potential policy shifts. Our list is below:
Figure 7: Potential Policy Shifts
Our overall view, and the markets’, is that a pro-business executive and legislative branch is bullish. However, we are cognizant that protectionism and tariffs could initially impact supply chains and potentially be inflationary (initially), and global trade volumes could slow. Reducing the size of the government could also cause a blip in the employment numbers, and reducing the size of the deficit could reduce economic liquidity. For now, the markets are looking past these potential sticking points. It’s still early. We’ll continue to monitor our indicators for signs that policy changes are having an outsized impact on the broad market as well as individual companies, industries, and sectors.
The following charts, produced by Maverick Equity Research, show the performance of several asset classes around the 2016 election compared to the 2024 election. Call it the “Trump Trades.” The 2024 data is through Friday, November 8. They provide an interesting perspective.
If the past is prologue, then U.S. equities, global equities, and small caps have upside potential. Bond yields and inflation could be sticky. The dollar also has upside potential, while gold could meet resistance. Again, these are observations. We’ll follow the messages of our broader-based indicators and models for capital allocation decisions.
Figure 8: 2016 (grey line) vs. 2024 (blue line)
Bottom Line: Our longer-term models remain supportive, with U.S. equities near all-time highs. Several major models continue to evidence initial signs of weakness but not enough to cause us to turn negative on equities. At this juncture, our models' collective message is that the uptrend is intact.
Our goal is to stay on the right side of the prevailing trend, introducing risk management when conditions deteriorate. As has been the case for all of 2024, the broader-based composite models calling U.S. economic growth, international economic growth, inflation trends, liquidity, and equity demand remain constructive. The Catastrophic Stop model is positive, and we are aligned with the message. If our models shift to bearish levels, we will raise cash.
This strategy utilizes measures of price, valuation, economic trends, monetary liquidity, and market sentiment to make objective, unemotional, rational decisions about how much capital to place at risk and where to place that capital.
If you would like to discuss any of the above or our approach to investing in more detail, please don’t hesitate to schedule a call or webinar. Please call Tyler Hagan at 941-330-1702 to arrange a convenient time.
I hope you have a wonderful week,
Sincerely,
Donald L. Hagan, CFA
Chief Investment Strategist, Partner, Co-Founder
Charts with models and return information use indices for performance testing to extend the model histories, and they should be considered hypothetical. Charts courtesy Ned Davis Research (NDR). © Copyright 2024 NDR, Inc. Further distribution is prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers, refer to www.ndr.com/vendorinfo.
Disclosures
S&P 500 Index – An unmanaged composite of 500 large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks.
S&P 500 Total Return Index – An unmanaged composite of 500 large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks. This index assumes reinvestment of dividends.
Sentiment – Market sentiment is the current attitude of investors overall regarding a company, a sector, or the financial market as a whole.
Disclosure: The data and analysis contained herein are provided "as is" and without warranty of any kind, either express or implied. Day Hagan Asset Management, any of its affiliates or employees, or any third-party data provider shall not have any liability for any loss sustained by anyone who has relied on the information contained in any Day Hagan Asset Management literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. Day Hagan Asset Management accounts that Day Hagan Asset Management or its affiliated companies manage, or their respective shareholders, directors, officers, and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. Day Hagan Asset Management uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. The performance of Day Hagan Asset Management’s past recommendations and model results is not a guarantee of future results. The securities mentioned in this document may not be eligible for sale in some states or countries nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates, or other factors.
There is no guarantee that any investment strategy will achieve its objectives, generate dividends, or avoid losses.
For more information, please contact us at:
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1000 S. Tamiami Trail, Sarasota, FL 34236
Toll-Free: (800) 594-7930
Office Phone: (941) 330-1702
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