02-03-2022: Are You Beating the Market?
Let’s play a little game. I am going to show you 4 charts and you have to guess which chart is being shown. These charts are all well-known indices, sectors, and ETFs.
Here is the first one.
You can see the dive it took in March 2020 and the subsequent move higher after that. This chart shows a strong move higher from April 2020 through November 2021 and it has been trading in a fairly narrow range since that time. (All of the charts shown in this article are from our friends at StockCharts.com)
Give yourself a pat on the back if you recognized this as the recent chart for DIA, the ETF that represents the Dow Jones Industrial Average. It has lost some ground since making an all-time high, but it is not down much and is actually stepping higher over the past couple of weeks.
Do you consider the DJIA to be “the market”? Are you beating this market?
This next chart should be pretty easy to figure out…
After plunging in the 2020 bear market, this Sector recovered somewhat before falling off again in the summer and fall of 2020. It finally regained its footing and has been working its way higher for the past 15 months. It is now trading at multi-year highs (but not at the all-time high, that occurred in 2014).
This chart might be the easiest chart to guess. We know that the strongest part of the market is oil and this is the chart for XLE, the ETF for the S&P Energy sector. With oil trading in the upper $80s, energy stocks are following and making multi-year highs. I have put a portion of client capital to work in oil and energy stocks/ETFs.
While the above chart is not “the market”, it does represent a healthy portion of the market. Are you beating this market?
Our third chart, below, showed solid growth from the March 2020 lows into the last part of 2021, but has sold off since making an all-time high in November of 2021.
In spite of the sell-off, it has moved a little higher the past two weeks.
This is another one that should be easy to guess. It is the chart for QQQ, the ETF for the Nasdaq 100 Index. This index is heavily weighted in large technology stocks such as AAPL, MSFT, AMZN, FB, GOOGL (and GOOG), TSLA and NVDA. QQQ is in an official “correction”, that means it is down more than 10% (it is currently down -12.5% from its high), but it is not in an official bear market yet.
Do you consider the Nasdaq to be “the market”?
Speaking of bear markets, take a look at our 4th chart, below.
This chart above is one ugly chart. After skyrocketing at the end of the 2020 bear market, it made its all-time high a year ago and has been falling ever since.
You might have guessed that this is the chart for ARKK, the Innovation ETF from ARK Investment Funds. This ETF is down an astounding 56% in the past year and is definitely in a bear market. The ETF represents hyper-growth stocks that include names such as TDOC, ZM, COIN, and SPOT. These were darling names in 2020, but, similar to names such as AOL, Yahoo, Gateway Computers, and Netscape in the dot com crash, these stocks have lost their luster and inflicted huge losses on buy and hold owners.
Is this ETF “the hyper-growth” market? Are you beating this market? You probably are.
Let’s tie this all together. The headline for this blog post is “Are you beating the market?”.
The answer depends on how you define the market you follow. If your focus is the S&P 500 only, then the market is down just 6% from its high. If your focus is the Nasdaq, the loss is twice that amount. If you have been investing in high-growth stocks, the losses are substantial; 50% or more in many cases.
This is why investing in “the market” requires more than just looking at one index or one group of stocks. The major indexes (“markets”) are certainly not overly correlated right now. The various indexes are behaving in drastically different ways. I track all of these markets on a real-time basis to determine what is best for my clients. This analysis includes what is the best investment strategy to follow right now, and even more importantly, what is the best strategy to not follow. In this current, bifurcated market, protecting client capital is the number one priority. That is why we have a heavy allocation to cash. The allocation to stocks is small and highly focused. We could be on the precipice of a generational bear market, but… maybe not. Watching the trends of major indexes gives me a great insight into the direction and speed of the market, regardless of direction.
When the market is in a strong bull trend, risk of loss tends to diminish and being fully invested in strong, up-trending stocks/ETFs makes a lot of sense. This is not one of those times.
When the market is in a strong bear trend, risk of loss tends to diminish (assuming you are not in a buy-and-hold strategy) and being invested in strong, up-trending inverse ETFs can make a lot of sense. This is not one of those times, either.
When the bull trend is not well-defined and the bear trend is not well defined, I find the better course of action is err on the side of caution and hold more cash. This is one of those times.
Nothing in this blog should be interpreted as a digital or electronic signature that can be used to authenticate a contract or other legal document, nor should anything in this blog be construed as being financial advice or investment advice. Investment advice is only provided through a formal, written asset management agreement. Services and products described herein may not be eligible for solicitation in your state. This information is for use by individuals residing in states where our products and services may legally be offered. Readers are advised that the material contained herein is not intended to be used as the primary basis for investment decisions and should be used solely for informational purposes and does not constitute a representation by Turner Capital Investments, LLC or Mike Turner or a solicitation for the purchase or sale of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. All information contained in this communication should be independently verified.
Past performance is no guarantee of future returns. There can be no assurances that a strategy will match or exceed its benchmark.
While all the information prepared in this document is believed to be accurate, Turner Capital Investments, LLC makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors, appearing in the document. The information presented herein does not involve the rendering of personalized investment advice. This information should not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell the securities discussed.
Investment advice is offered through Turner Capital Investments, LLC which is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the advisor has attained a particular level of skill or ability.