Market overview
The equity market has shown remarkable resilience, with the S&P 500 displaying low volatility and approaching record levels. However, the narrowness of this year's rally drivers and relative strength indicators pointing to rapid overbought conditions are raising concerns. Conflicting signals, such as recent buying activity by corporate executives and a VIX futures curve suggesting market confidence, add to the complexity of the current landscape.
Equities and risk management
We have continued to de-risk our equity portfolio, favouring a more cautious stance despite the potential to miss out on some gains. Our system detects a shift in market sentiment, suggesting a short-term pullback that could offer a more attractive entry point for redeploying our capital. Indices continue to signal overbought conditions, indicating a potential short-term pullback. The portfolio is currently 37.80% lower risk than the S&P 500, with residual beta and volatility controlled to minimize losses. Our recent technological improvements enhance our ability to make rapid, sensitive decisions.
Bonds
Our bond portfolio benefited from the decline in 10-year bond yields. We have lengthened duration in recent weeks to take advantage of falling yields. With a longer duration and a slight decline in credit quality, this asset class remains attractive thanks to the returns generated.
What we're seeing this week
Monday, December 4th
- No major economic data expected.
Tuesday, December 5
- 10 a.m. JOLTS (Oct.): We expect the decline in job vacancies to accelerate in October. The forecast decline in job offers would bring the ratio of job offers to unemployed workers to 1.44, compared with 1.50 in September.
- 10:00 ISM Services (Nov.): The ISM services index should continue to cool in November, although it remains in expansionary territory.
Wednesday, December 6
- 8:30 Trade balance (Oct.): Preliminary data suggest a widening of the trade deficit in October, driven by a drop in exports.
Thursday, December 7
- 8:30 Initial jobless claims (Dec. 2): We expect a slight drop in jobless claims due to the volatility around the vacation season.
Friday, December 8
- 8:30 a.m. Monthly employment report (Nov.): We expect the November employment report to send mixed signals on the state of the labor market. Nonfarm payroll is expected to rise by 150k, and the unemployment rate is forecast at 4.0%.
- 10 a.m. Sentiment University of Michigan (Prelim. Dec.): Consumer sentiment may improve slightly in the preliminary December reading.
Analysis and outlook
Last week's latest report suggests a cooling of the economy, corroborating our view. With indicators such as the resignation rate falling and the unemployment rate expected to rise, we appear to be at a potential turning point towards recession.
The cautious stance we have adopted in managing our equity and bond portfolios seems appropriate in this context of economic slowdown and market volatility. We remain attentive to market signals and ready to adjust our strategies as economic conditions evolve.
This week will be important for confirming or refuting signs of an economic slowdown. Data on employment, services and consumer sentiment will be particularly revealing. Given this outlook, it is essential to remain vigilant and responsive to a rapidly changing economic landscape.
Have a good week, and let's stay proactive in the face of market developments to make the right investment decisions.
