Video Transcript:
Hello there everyone. Brent Chavez, Aequitas Equitas Investment Group. We’re sending this video out to you because we see that there’s a lot of fear in the market, a lot of investors, maybe even yourself, are very concerned… maybe you’ve lost a lot of money. We’ve had an unprecedented stretch this week to the downside of the markets and many people were not prepared.
How about you? If you manage your money yourself, did you take the steps beforehand to minimize this downside risk potential?
If you have an adviser, has he called you? Has he taken steps to be able to minimize this risk or at least talk you through what is happening, how long this may be going?
When you attended my seminar, you may remember this slide that I had up on my screen. It was, “when is the best time to buy flood insurance?”
As we discussed at our seminar… before the flood comes. Obvious, but many people wait too long. This is a period of time that I was referring to when I said “plan ahead,” “things happen unexpectedly.” And often we’re not prepared.
We’re going to talk a little bit about steps that we took and the plan that we had for our clients to minimize this risk that they have in their portfolios at this time, and are able to breathe and relax and enjoy their retirements even under the most stressful of days.
I’m going to share with you some data that we used over a month ago to become more defensive; to prepare for the flood that we felt may be coming – the probability was raising as we look at some of the data from over a month ago.
This is the first chart that we use. This is the S&P 500.
The index that all of you see, “record highs, record highs,” every day making you feel like you need to be in the market no matter what because it only goes up. Well, this period of time here, we started to see some technical difficulties in the market. What do I mean? Well, we felt that the market had had a long run in a short period of time… fundamentals had been stretched… it had reached our target, short term target, and we wanted to start to look to be more defensive at that period of time. And what happened?
Well, the S&P 500, as we call it in the industry, “rolled over.” We sent out our client only videos, January 27… market was here. We got a “sucker’s rally” afterward for a few weeks. And then we saw the fallout to where we are today, down around the 3100 mark in the S&P 500. Again, we were looking for signs and this is one sign that we looked at.
Another technical chart that we looked at, analysis we were looking at was.. what was happening with the 10 year yield? And actually this is one of the most important charts any adviser should be using, or if you do it yourself, you should be looking at and you need to do it regularly.
We saw yields tumbling… stock market is going up and yields are tumbling. “Red flag,” “a canary in the mine,” yields falling off. Back in January, the yield was at 1.39. It has fallen through that today, somewhere around 1.27. Pressure moving forward… probably much lower yields on 10-year, 20-year, and 30-year treasuries. Again, that is not a sign of a healthy stock market. You should be moving to the sidelines when you see these type of indicators flashing signals that not all is well.
We’re going to continue to look at our next chart. This is the financials ETF, an exchange traded fund.
And things that we look for when we manage our clients monies is called “confirmation” from other indexes, other sectors of the market. And the S&P 500 was making all time highs but there was a problem with the financials that make up a large part of the S&P 500. We saw back in ‘16, it finally regained or touched the all time high that it had set way back in 2008. Then pullback and then financials went along and contributed to that rally we saw in the S&P 500 going into the end of last year. But, then the financials once again, hit resistance going back to 2008 while the S&P 500 was breaking out, this was falling and we’re here today. It was not able to confirm the move the S&P 500 had made.
We’re going to see that on our next chart a little bit clearer. Here again, is the financials, the purple is the S&P 500.
A red flag to us as we’re managing our clients money… no confirmation. The S&P 500 was being pulled up by five mega cap stocks while the rest in the index were seeing deterioration in their charts. Again, not healthy… red flags. You may want to get the furniture out of the first floor. You may want to get some pumps ready in the basement. Signs that something didn’t smell right.
We’re going to look at our next chart that we were looking at – another area, the Dow Jones Industrial.
You constantly see that on TV every day, “record high, record high.” But there was a canary in the mine concerning that. And here’s the one that we look at here. This dark blue line is the Dow Jones Transports. So, this is the Dow Jones Index, this is the one you see on TV every day. 30 companies making goods that get used here in America, sent abroad to all corners of the earth. But the problem was, this Dow Jones Transports moves all these goods. So why was it disconnected from the Dow Jones Industrial? It was telling me that this rally here could not last. This (Dow Jones Transports) has to participate… it has to in any sustainable rally. As you look, participation, participation, participation, participation, disconnect… canary in the mine. May want to step back and lighten up your long positions.
And we’re going to look at another chart here that was really helpful in us seeing something was not right when it came to the moves that the S&P and the Dow Jones were making.
S&P and Dow Jones making all time highs, oil falling off the cliff, not a sign that the global economy is about to take off and lift the S&P and the Dow Jones much further. As I had said in my client-only videos back in January, the S&P, the Dow Jones and others areas of the market were being priced to perfection and any hiccups would cause a pullback… and that hiccup was the Coronavirus.
Back at the end of January, very little news was coming out of China… which is concerning to me because China is really not a country that we can really trust to get full disclosure when they have issues within their borders and how bad things are. So, that really was the icing on the cake to say, “hey.. there’s way more risk being in these markets than out of the markets.” Let’s start moving to our defensive portfolios. Let’s be able to say… “hey, we had a great year in 2019. A great month into January. Let’s take a timeout. Let’s sit on the sidelines, be defensive and look for areas that we can make money that are going to be contrary to the S&P 500, the Dow Jones and many other sectors that people are invested in.
So, as we look at our final chart… Where was the money flowing that helped us to see that being defensive and moving to treasuries was the correct thing to do at that time?
Well, if we look here, go back a month, we see they’re all in tight formation (treasuries, municipal bonds), S&P and Dow continue to make all time highs, but really, at the same time the money was flowing to the bonds TLT, MUB, IEF.
This is a 20-year Treasury fund (TLT), this is a Municipal bond fund (MUB), and this is a 10-year Treasury fund (IEF). We can see that the flight to safety was taking place no matter as these yields are dropping, somebody was coming in to buy. Yields drop more… somebody would come in and buy those treasuries up. Flight to safety was on and we have seen now here’s the Dow Jones, the S&P going this way (down), and bonds have gone this way (up).
So again, if you’re concerned about what the market has in store for you moving forward, not just this year, not just this month… next year, the year after. If you want to have somebody who truly is actively managing your money on a daily basis, give us a call, come in and see us.
You got a little bit of a taste of us at our seminar. We talked about all the things that we do differently than everybody else. Come in for a closer look. See what we’re doing. We can talk in more depth about the highlights that we gave you here, as to what we’ve done to be able to help our clients to relax, be able to breath, do what they want to do and that’s live life, enjoy the retirement, whatever is more important to them.
So again, thank you for listening. If you need us, we’re here. My contact information can be found below.
Brent E Chavez
President, Aequitas Equitas Investment Group
Investment Adviser Representative
(215) 766-7002, bchavez@aeinvestmentsgroup.com
Learn more about the Services We Provide, Brent E Chavez, and Our Philosophy.
*Charts used in this video are from Yahoo! Finance and JC Parets
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