Investment Outlook - November 2016

Our top year-to-date strategies:

SPY, the S&P500 ETF, returned 5.87%, year-to-date.

Market comment:

Recent surveys show that fund managers have increased cash positions1 while outflows from equity funds are at historically high levels2. From a contrarian point of view this could be considered market positive. There are two bullish seasonal biases kicking in: The presidential year is nearing an end and we are walking into the traditional strongest months of the year. The beginning of the month may be volatile as markets react to elction results. It remains to be seen how and if these results will affect the rest of the year.

All our strategies corrected during October. Our hedged Gold strategy was almost flat at +0.17% while our aggressive 3x UIS suffered a -11.02% correction. The World Top 4 lost -1.80% while most other strategies lost anywhere from -2 to -4%.

This was partly due to a sudden correction in Treasuries, causing  TLT to lose almost 5% for the month.  SPY was down -1.73% and GLD -2.74%. This type of rise in cross-asset correlation was seen in 2015. In the graph below you can see how TLT an GLD correlations to SPY turned positive in October.

(Click on image to enlarge)

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Correlations of TLT and GLD become positive end of October.

We have found this type fo behaviour to correlate to a strengthening dollar. UUP the ETF that tracks the dollar index is up 3% for the month, a fairly large move, causing the index to approach towards it’s 2015 highs. We are taking this into consideration even though the environment is quite different this year. While commodities and foreign markets were crashed by the 2015 dollar move, selected markets are showing tremendous strength, namely coal (KOL:+69% YTD), metals & mining (XME:+51% YTD), Brazil (EWZ:+68% YTD).

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