Market Update for the Week of November 20th, 2023
As the end of the calendar year approaches, so also do discussions regarding any unrealized gains or losses of substance sitting within taxable accounts. It is probably a safe assumption that our clients prefer to pay less in taxes whenever possible and there are a few simple strategies that can be applied within the portfolio to help in that endeavor. "Tax Loss Harvesting" is among them, and while it is not exactly an advanced accounting strategy, it is an effective way to both offset gains and rid the portfolio of laggard positions before the calendar flips to 2024.
With the S&P 500 (SPX) up for the year, one might believe there are significantly fewer stocks in the red than there were last year. However, it’s important to remember that the SPX has been driven up mostly by the “Magnificent Seven”, which are the seven companies (out of 500) providing the majority of this year’s return. Many of the other 493 companies are down for the year. Those are the areas we have been and will continue to be looking at to offset gains and/or realize capital losses. Losses from these positions may be used to offset some of the gains already taken in the calendar year or can be "carried forward" in many cases. The harvesting of losses is a straightforward approach, which can be combined with our portfolio management process of weeding out technically weak holdings.
We are in the process of identifying weak positions with unrealized losses to move into positions we believe will improve our investment lineup in 2024. Please let us know if you have any questions or would like to further discuss our “Tax Loss Harvesting” strategy.
An extremely important side-note about the S&P 500 Index ~ The version of the index that is widely quoted and discussed is the Capitalization-Weighted Index (SPX), which is an index in which each company is weighted relative to its total market capitalization. The larger the market value of the company, the greater the impact on the value of the index. It is not normal for seven companies to drive the majority of the return of an index while many of the other 493 companies struggle. A more accurate version of the S&P 500 Index, giving a clearer picture of the health and breadth of the overall market, is the Equal-Weighted Index (SPXEWI), which is an index in which each company is equally weighted, so the smallest companies are given equal statistical significance (or weight) to the largest companies. According to Dow Jones Market Data, the Capitalization-Weighted S&P 500 (SPX) is outperforming the Equal-Weighted S&P 500 (SPXEWI) by the biggest margin on record. It’s always important to look below the surface to understand where the performance is coming from and to make sure performance comparisons are accurate.
The current reading for the Nasdaq Dorsey Wright PR4050 Cash Trigger is: Money Market = 38.03% & U.S. Equity Core = 95.77%. For the PR4050 indicator to trigger and alert us when we should consider moving to cash, Money Market must be 50% or above and U.S. Equity Core must be 40% or below.
Source: Nasdaq Dorsey Wright
Below is the most recent DALI (Dynamic Asset Level Investing) Indicator showing Commodities, International Equities, and Domestic Equities continuing to jockey for position.
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These views are those of the author, not of the broker-dealer or its affiliates. This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. All investments involve risk, including loss of principal. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. All indices are unmanaged and may not be invested into directly.
Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Nasdaq Dorsey Wright developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions. Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolios across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.