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V2 Model Free Update - A Longer Look!

V2 Model Free Update - A Longer Look!

Holidays for some reason always make me think about history and the long term. Today, after the Easter weekend, is no exception.

So I dialed up three different longer-term charts that lend some perspective as to where we are and where we might be headed next.

The first is a weekly chart is one of our "old school" ratios. XLE vs XLV. Energy vs Health Care. Energy is one of the best performers during inflationary periods and health care is relatively neutral hence you can learn something from this ratio. Over the past 10 years, you can see this ratio operated below a downward sloping (green) 100 week moving average. Inflation was low. Tech and growth stocks did well. Look where we are now. The 100 has turned up and we are operating above the line. Growth stocks will most likely suffer until this ratio turns back down.

The second chart is of the VIX "fear" index monthly for the past 20 years. Here you can see three things. The VIX was elevated during the .com bust and the great recession. Stocks struggled. Then you can see from 2012 to the Covid plunge we operated at a lower level. Growth and Tech sectors did well. And, you can see where we are now. The VIX will need to move back below 20 for sustained upside in stocks.

The last chart is of 10-year interest rate yields for the past 20 years. You can see we have broken the downward trend line and are approaching resistance from 2018 at 3.2%. If rates can hold the line in this zone I would expect the markets to improve. If we blow through it, I would expect more pain.

For the bullish case to improve we need to see some improvement in any of these areas: inflation, interest rates, liquidity, earnings, or Ukraine. No predictions here. If some or all of those things happen they will start to show up in these charts.

Our V2 Model tracks over 120 asset class ratios on various time frames to assist us in deciding how and when to allocate our holdings. No single indicator, chart, or list gives market clarity. They each give a point of view that we factor into our model. We do not forecast. We follow the math. It has led us to remarkable long-term performance.

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Distance=Victory

Chris

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