OVERVIEW
The week started out with a bang from Monday’s release of the September ISM Services Index which had another strong reading higher than August’s; more importantly, an indicator of future business activity moved up to an even stronger reading. Jobs data made further improvements while housing continued its strength with Mortgage Applications up 21% year over year. Overseas, a broad measure of business activity showed confirming or sustaining readings of prior months’ strength for China, Germany, UK, and Brazil; for India it showed a major surge up. Perhaps the impetus for the strong market rally was another week in a succession of strong weekly data which is convincing the market that the economy’s recovery is sustainable.
This week’s rally shifted back to the asset class rotation that began in early September with economically more sensitive classes such as Emerging Markets and US Small Caps outperforming US Large Caps and Value outperforming Growth.
Bonds followed suit with Credit and Blend outperforming Interest, which were fractionally negative, as rates rose on increasing growth prospects.
All Commodities rallied led by more economically sensitive Energy and Silver.
Week ending October 9, 2020
Weekly Commentary
PERFORMANCE
TAG TACTICAL STRATEGIES: Global Macro
All three core strategies had returns in excess of their proxies due to allocations in Silver, Emerging Markets and US Small Cap Equities and Credit and Blend Bonds.
Tactical Income’s positive return was led by its over-weight to Credit and Blend.
Tactical Equity’s return in excess of its proxies was led by cyclically sensitive Brazil Small Cap, Emerging Market Internet and Technology and US Small Caps including Biotech.
RPg STRATEGIES: Quantitative Formula
Tactical US Equity performed in line with the S&P 500 due to allocations to economically sensitive sectors Energy, Materials and Industrials. Tactical US Equity FT’s return was in excess of the S&P 500 due to its Mid and Small Cap bias.
Tactical Global Balanced returned in excess of its proxies due to allocations in similar economically sensitive sectors and its Mid/Small Cap bias.
OUTLOOK
The politicization of the Covid-19 virus rages on. This has led to the ongoing destruction of lives from the absurd on again-off again opening and closing of businesses, schools and sporting events due to the disingenuous focus on virus cases; it has also led to deflection of the proper public policy response for protecting those at risk. Despite these obstacles, the American people appear to be pushing forward toward life as normal and the economy is pushing forward with its recovery. We believe the market expects much of this chaos to end after the election and that the economy will pick up renewed momentum.
More immediately, we believe the market rally is in direct response to the powerful economic data. It also may include the success of Operation Warp Speed (OWS) which the Trump administration launched in May with an unprecedented public/private partnership for the development of a vaccine and the attendant therapeutics. According to Dr. Moncef Slaoui, Phd., molecular biology and immunology, who heads up OWS, this public/private partnership may be the most remarkable feature of OWS; this may be as important a breakthrough as any vaccine.
The TAG and RPg strategies remain allocated to an improving growth outlook.
We welcome your comments on the foregoing.
Please direct them to support@riskparadigmgroup.com
Download PDF
Important Disclosures:
Risk Paradigm Group, LLC (RPg Asset Management or RPg) is a registered investment advisor with the U.S. Securities and Exchange Commission (SEC). Tactical Allocation Group (TAG) joined Risk Paradigm Group, LLC and became a division of the firm on July 22, 2016. Additional information regarding Risk Paradigm Group, LLC can be found on our website at www.rpgassetmanagement.com. RPg does not provide tax or legal advice. Please consult an independent tax advisor for additional guidance.
This material has been prepared solely for informational purposes and is not to be considered investment advice or a solicitation for investment. Performance provided is past performance. Past performance is not indicative of future results. Investments may increase or decrease in value and are subject to a risk of loss. As with any investment strategy, there is potential for profit as well as the possibility of loss. No representation or warranty is made that any returns indicated will be achieved. Investors should consult their financial advisor before investing.
Any projections, market outlooks, estimates or expectations of future financial or economic performance of the markets in general are forward-looking statements and are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Actual results or events may differ materially from those projected, estimated, assumed or anticipated in any such forward-looking statements. Information contained herein is as of the period indicated and is subject to change. Any views expressed herein are those of the author(s) at the time of writing and are subject to change without notice.
The information contained herein includes information obtained from sources believed to be reliable, but we do not warrant or guarantee the timeliness or accuracy of the information as it has not been independently verified. It is made available on an “as is” basis without warranty.
This material is proprietary and may not be reproduced, transferred or distributed in any form without prior written permission from RPg. RPg reserves the right at any time, and without notice, to change, amend, or cease publication of the information contained herein. RPg may change any exposures and compositions reflected herein at any time and in any manner in response to market conditions or other factors without prior notice.
References to Indexes: The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the equity performance of larger companies in the U.S. Please note that an investor cannot invest directly into an index.
Risk Disclosures: Concentration, volatility, and other risk characteristics of a client’s account also may differ from the information shown herein. There is no guarantee that any client will achieve performance similar to, or better than, the strategy mentioned herein.
Sources: Bloomberg.
For more information, including risks of investing in our strategies, visit our website at www.rpgassetmanagement.com.