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VIG Newsletter Aug. 3 2024 CHANGE

VIG Newsletter Aug. 3 2024 CHANGE

Are We In A Recession?

Recap

The stock market logged solid declines this week. There were some winning sessions in the first half of the week, but growth concerns were pushed to the fore during Thursday's session and sparked a strong sell-off. The S&P 500 and Dow Jones Industrial Average each declined 2.1%, the Nasdaq Composite settled 3.4% lower than last Friday, and the Russell 2000 reversed its recent outperformance, dropping 6.7%.

The Vig Co. portfolio was down this week. We will make a change during Monday’s session.

Performance (Weekly/YTD)

VIG Co. -4.26% / -1.72%

SPY -2.06% / +12.83%

Change

We will sell 25% of VIG V4 and leave in CASH.

In Composer go to Vig V4 and hit the sell button. Put in your sell amount and click done. The trade will be executed during Composer’s trading session at the end of the day.

VIG Co. Portfolio Holdings (Allocation)

VIG V4 (75%)

CASH (25%)

Notes/Charts

Here are a few things we are watching.

V4 had a good run early in the week and we closed out July up over 10%. Then, we gave it all back on Thursday and Friday. We are reducing our position in V4 and increasing cash to reduce our volatility in the short term. We are at a potential inflection point and perhaps nearing or in a recession. That uncertainty has us increasing our hedging at this time.

Here is V4 this week.

There has been a lot of talk of recession over the past few days and the potential for significant drawdowns. Here is the SP500 weekly with a common weekly moving average - the 34-week. You can see prior times we fell below the 34 and what happened next. You can also see where we are currently. Giving up 5153 would be concerning.

There was also a lot of news coverage regarding the weak job number on Friday and the rising unemployment rate. Here is a view of the Relative Strength of the Unemployment rate. You can see as the RSI jumped above 50 we experienced recessions and significant market drawdowns in 2000, 2007, and 2020. You can see where we are now. We have a divergence - the RSI is above 50 and yet the SP500 has not rolled over in a big way.

I saw the Sahm rule mentioned a few times in the past few days. The Sahm rule is designed to signal the start of a recession. It reached 0.5%, as in, the three-month moving average of the unemployment rate is now 0.5% above the low in the last 12 months. It was officially triggered on Friday. You can see history going back to 1960 here. It does a good job of signaling recessions (the shaded areas). You can see where we are now at the blue arrow. We might be in a recession.

On the positive side of the ledger. The SP500 bounced back a bit late in the day Friday and stayed above the key 20-week moving average (blue arrow and dotted blue line). You can see we are still in a weekly uptrend. You can see we have not yet morphed into deeper pullbacks like we did in 2020 and 2022. There is the potential that this is simply another short-term correction and stocks will improve from here.

Plan

We will follow the math.

Chris

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Market information from Bloomberg, ETRADE, Composer, Koyfin, and StockCharts.com.