Equal weighting is a compelling strategy for achieving a modestly greater performance in the stock market compared to the traditional method of weighting shares according to their market capitalization. A prime example is the Guggenheim S&P 500 Equal Weight ETF (RSP), which has achieved an impressive annualized total return of 7.9% over the last decade as of October 10. This outcome surpasses that of the conventional market-cap-weighted S&P fund, the SPDR S&P 500 (SPY), which reported a total return of 7.0% during the same timeframe, according to Morningstar.com. But does equal weighting enhance asset allocation results when compared to traditional portfolio structures?
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The major asset classes exhibited a varied performance last week, based on a collection of proxy ETFs. Although losses were prevalent across the five trading days ending October 7, a few markets, particularly equities in emerging markets, showed resilience. However, the week was largely dominated by losses, with U.S. real estate investment trusts (REITs) facing the most significant decline.
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● Messy: The Power of Disorder to Transform Our Lives
By Tim Harford
Review via Publishers Weekly
In this fascinating exploration, journalist Harford (The Undercover Economist) delves into the idea that disorder is fundamental to innovation. He cites examples such as the creative chaos brought about by Brian Eno’s Oblique Strategies and the historical significance of MIT’s quickly constructed Building 20. In the business realm, Jeff Bezos of Amazon is highlighted for his risk-taking, which helped the company thrive through the dot-com bubble burst. The narrative also discusses the pitfalls of overly organized systems.
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Recent data indicates that U.S. companies added jobs at a slightly lower pace than anticipated in September, according to an update from the Labor Department. Private payrolls rose by 167,000 last month, which falls short of expectations. This moderate growth is less than the average increase of 192,000 observed over the past year, leading to speculation about the timing for the next interest rate hike by the Federal Reserve. Despite this recent moderation, the year-over-year growth for private payrolls held steady at a robust 1.9% rate for the fifth consecutive month.
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The previously strong utility sector has faced challenges in recent weeks, allowing the technology sector to take the lead according to a selection of proxy ETFs. Anticipation of a potential interest rate increase by the Federal Reserve has negatively impacted yield-sensitive utility stocks, while the tech sector remains buoyant, continuing to trade close to record highs.
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Ilya Kipnis at QuantStrat TradeR reminds us of the limitations of the Hidden Markov Model (HMM), a valuable tool for identifying shifts in market regimes. Kipnis notes that while HMM can offer some insights, its predictive capabilities concerning the stock market are contentious. This isn’t entirely surprising, as forecasting is notoriously challenging. Nonetheless, HMM still proves useful for generating relatively objective signals regarding the current equity regime state. A precise forecast would certainly be preferable, but compromises are sometimes necessary.
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The ADP Employment Report released this morning shows that U.S. payrolls increased less than anticipated in September. The total of private-sector jobs grew by a seasonally adjusted 152,000 last month, falling short of the Econoday.com consensus forecast of 170,000 and significantly less than the 175,000 rise recorded in August. This weaker increase, which brings the year-over-year growth for payrolls down to a three-year low, raises concerns about a potential rebound in the upcoming government labor market report for September, scheduled for release this Friday.
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The term premium for the 10-year Treasury Note—a measure of the additional compensation that investors expect for holding longer-term bonds compared to shorter maturities—has been mostly negative throughout 2016, a trend unlikely to change soon. The persistently low numbers, as reported by the New York Fed, reflect a strong demand for safe investments, driven by expectations of only modest growth both in the U.S. and globally. As the term premium continues to decline, this shift indicates that the bond market is venturing into uncharted territory.
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In September, the projected risk premium for the Global Market Index rose, hitting a 17-month high. The GMI, which represents an unmanaged mix of major asset classes, is now expected to yield a long-term annualized risk premium of 3.9%, which is slightly higher than the previous month’s estimate.
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In September, broad commodities led the major asset classes with a notable rise. The Bloomberg Commodity Index increased by 3.1% for the month, marking its first gain since June in the monthly comparison.
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In summary, the data and analyses shed light on significant trends across various asset classes and market sectors, offering valuable insights for investors and analysts. As market dynamics continue to evolve, understanding these shifts is crucial for making informed investment decisions.
