The ETF Portfolio Strategist: 3 DEC 2023
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
The markets continue to defy wary forecasts, but there are two more hurdles to overcome before your editor is all-in on assuming a new bull market has started. We’ll get to in a minute, meanwhile the view that momentum is turning increasingly bullish has more than trivial support. Exhibit A: All but one of the trailing windows for each of the asset allocation ETFs in the table below are positive. See this summary for details on the data in the tables below.
The question is whether the rebound is more than trading in range? No, or at least that’s my view until markets break through a pair of previous highs. Let’s use iShares Aggressive Allocation ETF (AOA) as a proxy. The fund has been on a white-hot ride in recent weeks, closing out last week at just below its summer high. Let’s see if it can break above this ceiling. If so, the next hurdle is AOA’s record high of late-2021 — roughly 71.
What are the odds that AOA will take out both marks? My guesstimate: moderately high that the first hurdle will give way. Assuming ~67.5 for AOA gives way, it’ll be timely to assess the prospects that 2021 high will soon crumble. But we’re getting ahead of ourselves.
There are always risks lurking, of course, but the current mix geopolitical, economic and financial hazards aren’t easily dismissed as garden variety threats. The pushback is that most markets have become comfortable with the Ukraine and Israel-Gaza wars, elevated interest rates and the potential for softer, perhaps recessionary conditions in 2024. Fair point, but it’s still not obvious to this observer that the recent rally in risk assets is more than a reaction to 2022 selling that went too far.
But it’s also true that Mr. Market’s recent strength has diminished my confidence that staying defensive still has merit. I haven’t fully abandoned that view, but there are limits to second-guessing market signals and we may be approaching the put-up-or-shut-up moment.