The Markets Show Little Change Year-to-Date

The Markets Show Little Change Year-to-Date

Posted on April 16, 2018
Market State 6: Transitional/Long-Term Bullish (14 days)
The S&P 500 remains in Transitional - Market State 6 following last week’s movements.  According to the Canterbury Portfolio Thermostat Indicators, Market State 6 characteristics are as follows:
Long-Term: Bullish
Volatility: High – Daily Outliers of 1.5% plus (Up or Down): Frequent
Short-Term Supply/Demand: Neutral

Canterbury Volatility Index (CVI 98):
Volatility remains high following a wide-range of daily fluctuations.  Like prior weeks, last week featured a few “outlier” days.  According to studies performed by Canterbury Portfolio Analytics, the daily standard deviation of a rational market environment is around 0.75%.  
I have talked a lot about volatility over the years. Canterbury’s studies have provided statistically relevant evidence that show changes in volatility directly correspond with the level of market efficiency. In other words, high and increasing volatility, of an individual security, occurs when there is confusion regarding the current value in the market place. Increasing volatility, in diversified markets, occurs when the correlations among securities increase. Both instances are connected to Transitional or Bearish market environments.
There are two primary “Transitional” market environments. One will occur following a large decline in the market (-15%, -20% or more). This is not where we are in the current environment.  The other Transitional market environment is a transition from a Bullish Market State to one with higher volatility (typically Market State 6).
The Canterbury Portfolio Analytics Team keeps record of historical S&P500 Market States dating back to 1950. Market State 6 goes back to one of the Bullish Market States 75% of the time. Another characteristic is that there will be a period with several single outlier days (meaning 1.5% or more) either up or down. The net total market decline, from the peak, should not exceed a normal “bull market correction” as defined as -10% with rare -12% outliers.  In addition, the outlier days should be fairly well balanced (both up and down). As a result, all fluctuations should come close to averaging out with little change.

The following is a list of market indexes with their year-to-date returns. Please keep in mind that most would have predicted that the current volatility would have resulted in a larger decline in the markets.
Equity Market Close Year-To-Date
S&P 500 2,656 -0.1%
DJIA 24,656 -0.9%
NASDAQ 7,107 +3.2%
EAFE (Foreign)   +0.6%
Emerging Markets   +1.2%
The markets’ returns make it look like nothing is happening.  Additionally, the Advance/Decline Line, which we have discussed in prior weeks, remains healthy.

Source: AIQ
Bottom Line:
The long-term bull market in equities remains in-tact. The market will remain in a long-term bull market until the Portfolio Thermostat’s Market States shift to a Bearish Environment.
*Press Release*
Recently, Canterbury and the Portfolio Thermostat were featured in several media outlets.  Bill Hortz, with the Institute for Innovation Development, wrote an article based on an interview conducted with Canterbury a few weeks ago. The discussion was about how advancements in technologies and innovative investment product creation has led to an evolution in adaptive portfolio management.  The article has been featured in Financial Advisor Magazine, Seeking Alpha, FinancialAdvisorIQ, NASDAQ Financial Advisor Center, and a few other publications. Below is a link to read the article on NASDAQ:

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.