Is The Trump Rally Over?

Is The Trump Rally Over?

Posted on February 06, 2017
Weekly Update

Market State 1: Bullish (7 trading days): Bullish/Rational - Market State 1 is the most predictable of the Portfolio Thermostat’s 12 Market States (environments). The risk, while in MS 1, is typically around -2% to -4% from the most recent market peak.
Below is a chart that shows the different Market States that Canterbury has identified.

The Canterbury Portfolio Thermostat methodology stresses the importance of limiting risk to no more than a normal bull market correction through all market environments. The portfolio should also be in a position to participate in the upside of securities (ETFs) that can maintain those bullish Security State characteristics long enough to produce meaningful returns.
Canterbury Volatility Index (CVI 39): The last time the CVI volatility reading was this low was on September 19, 2014. A bull market correction of about 7.4% occurred over the next 18 trading days. The market’s volatility was squeezed down to CVI 38 on November 02, 2006. The S&P 500 went up about 6.7%, to 2271, over the next 72 trading days.
Market Comment:
Is the “Trump rally” over?
The S&P 500’s most recent low was recorded on 11/4/2016 at 2088 (the Friday before Election Day). The market then gained 187 points, 8.94%, over the next 26 trading days. The following 35 trading days, through last Friday, have remained in a very tight trading range. The result has been the extremely low volatility reading, CVI 39, we are currently experiencing.
There has been an equilibrium between buyers and sellers. The sideways market has made investors complacent. It will not take much to shake them out of their current state of non-committal. Expect a likely break in one direction or the other soon.
We remain in a bullish market environment for stocks and a bearish market for bonds. That said, a temporary counter-trend move for both primary asset classes (down for stocks and up bonds) is expected and overdue.
As discussed many times before, markets are not driven by short-term news events.  Such events can be the cause for random 5% to 10% “market noise.”  These short-term blips can play with investors’ emotions and lead to knee jerk buying or selling that magnifies the market noise. One of Canterbury’s primary objectives is to limit portfolio risk to the random 8% to 10% corrections from the highest peak value. On the other hand, the Canterbury Portfolio Thermostat process is designed to hold individual ETFs that have characteristics reflective of bullish tendencies.
Bottom Line:
One primary reason for poor long-term investment returns comes as a result of focusing on the wrong short-term metrics. Focusing on month to month returns versus benchmark indexes or other investment strategies is a recipe for disaster. Every investment process will have periods when it does or does not beat a benchmark.
In addition, one CANNOT expect his or her portfolio to produce predictable annual returns year in and year out. Markets are not driven by arbitrary dates on the calendar. As a rule, financial markets will have bullish periods, with high returns, and bearish periods with net declines. Most years will either be lower or higher than expected.
Successful investment programs are built on establishing and maintaining an efficient portfolio that can produce the highest returns with the least risk over a lifetime. High returns without the ability to manage the eventual downturns are meaningless.

Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.