The ETF Portfolio Strategist: 3 MAR 2024
Trend Watch: Global Markets & Portfolio Strategy Benchmarks
Aggressive asset allocation strategies continue to rally, forging new record highs. The trend appears to be broadening as conservative strategies are now showing firmer signs of breaking higher and taking out previous highs.
Let’s start with iShares Aggressive Allocation ETF (AOA), which rallied for a sixth straight week. The latest increase marks another week of decisively moving above its late-2021 high.
After last week’s close all flavors of iShares asset allocation ETFs are posting strong 5 Signal scores, one notch below the highest-possible reading. See this summary for details on the metrics in the tables below.
A key change in last week’s trading is the breakout of the iShares Conservative Allocation ETF (AOK), which closed decisively above its recent trading range, which also translates to a two-year high.
The broad rally in various asset allocation strategies is unsurprising when you consider that the bullish bias is broadening. The majority of markets around the world are now posting bullish Signal scores, which equates with a strong tailwind overall.
A key question is whether the recent revival in bond markets, proxied in the chart below by US Treasuries marks a durable change after a long run of false signals? The answer will cast a long shadow on whether conservative strategies continue to join the party that’s been underway in more aggressive portfolios for the past several months.
The market is still pricing in moderate odds that the Federal Reserve will start cutting interest rates in June. If that forecast continues to resonate with the crowd, the sentiment will help keep the bond market’s latest pop going.
Even if the bull run endures, it looks overextended at the moment. AOA’s relative strength indicator (RSI), for instance, is now in overbought terrain on a weekly basis for the first time since in three years. That’s hardly a smoking gun that signals it’s time to run for the exits, but it’s a reason to think that AOA’s recent run is due for round of cooling.