Updated: May 29, 2020
The market sold off quite a bit this afternoon. ULTRA-MAX was able to hold on to a small profit while all models nicely beat the market.
I'm still scratching my head about the sell-off, though. Could it be that the market is actually beginning to consider something other than 'a vaccine on the horizon'? Surely not!
But, amazingly, it does seem that the market finally realized that something other than breathless hoping that a vaccine will cure our ills, put food on the table, get us all back to being 30 years old again, our children all with straight A's in school, and so much money in the bank that we can't count it.
The market actually came to realize, albeit, only slightly so, that our economy just might be hurt if Trump slaps some sanctions on China tomorrow. Forget about 40 million people unemployed... forget about the country still, for all practical purposes, in lock-down... forget about all the small businesses still shuttered... forget about the fact that many businesses are realizing they can operate more efficiently with fewer people, resulting in longer-term chronic unemployment... none of that matters. But, all of a sudden, a little punching down on China and the market gets skittish (as it should).
I suspect that the Trump sanctions will result in more blustering from China than a change in behavior. Large economic powers, like the US and China, do not suddenly change their inherent behavior just because one side sanctions the other. There may be retaliatory responses from China... and don't forget how China is slowly, but surely, absorbing Hong Kong into mainland China regardless of what the rest of the world wants. Yes, these geo-political moves are important and there may be severe economic consequences, but nothing nearly as consequential as the fact that our economy is, for all practical purposes, at a near standstill. The stock market continues to ignore the 8,000 pound gorilla in the room while it dances merely around the vaccine tree of all that is good and powerful and wonderful.
The market seems, to me, to be extremely juvenile (no insult intended to juveniles) in its reaction to economic conditions. It is, sometimes, extremely frustrating to contend with the fact that the market is never wrong when it is so blatantly not reacting to what 'normally' drives the market... pure, unadulterated, economic conditions of the next 6 months. Oh well... let's pretend we like what the market is doing since there is nothing we can do about it.
Back to reality... I made some substantive, but not overly obvious adjustments to some of our portfolio models this week. Our tests and back-tests have predicated a move toward more diversification in our ETF-centric models. Those changes are showing some early, positive results. We have added a fairly significant anti-whipsaw component to the ULTRA-MAX model (I'll be updating my clients with a special email on that next week). We have added a rather important early entry algorithm to all of the models which looks to give us the ability to capture more gains in the earlier stages of an equity's move into a strong bullish trend. There is a lot of math in the algorithms and I like the early results. At the end of the day, we know that net total return is the ultimate judge of success. Our goal is to reach those goals while mitigating as much risk as we can in a very high-risk environment... the stock market.