U.S. Equity Strategy Updates

The MarketVector™-GammaRoad U.S. Equity Strategy Index (Bloomberg: MVGMMA Index) reduced its equity exposure for the second time since the start of the year, as its measure for economically sensitive asset relationships turned bearish during the second week of February. As a result, the strategy further lowered its equity weighting to 33% and increased its T-Bills exposure to 67%. The strategy returned -0.05% for February and provided valuable risk mitigation relative to the S&P 500 Total Return Index, which fell by -1.30% for the month. Year-to-date through February the MVGMMA Index has returned +3.18% while the S&P 500 Total Return Index has returned +1.44%. We find the strategy’s current positioning to be notable for several reasons. Specifically, our research suggests that periods where only 1 out of 3 measures is bullish: might be characterized by significantly higher volatility, might be shorter-term in nature, and might ultimately resolve with a significant move in either direction. As we observed in our November 7, 2024 update, our research suggests that when only 1 of the 3 measures is bullish, “…this condition can carry unique significance in its implications for the market environment. We find this to be an intuitive result of the strategy’s investment process. When only 1 of the strategy’s measures remains favorable, this can be considered “the last soldier standing.” This condition suggests that either the market has nearly exhausted its fuel for the current phase of the cycle (i.e. nearing the end of a cyclical bull or a cyclical bear), or the market is experiencing the-pause-that-refreshes on its way to resuming its prevailing trajectory.” To illustrate the basis for these expectations, we have updated here several charts that we shared previously in this context. The first chart below shows the annualized volatility for the S&P 500 Total Return Index’s daily returns since the base date of the MVGMMA Index, categorized by the level of the MVGMMA’s aggregate index signal. This chart supports our expectation that the market can be much more volatile when only 1 measure is bullish:

The market continued its impressive run in January, as the S&P 500 Total Return Index rose by +2.78% for the month. The MarketVector™-GammaRoad U.S. Equity Strategy Index (Bloomberg: MVGMMA Index) benefitted by entering 2025 at its maximum equity exposure and returned +3.23% to start the year. Notably, the strategy’s measure for consumer confidence turned bearish during the final week of January...

To follow-up on our focus from last month’s update, the market entered December in rarified territory based on its lofty performance over the prior 12 months. The S&P 500 Total Return Index took a breather by falling -2.38% for the month, while still recording an impressive +25.02% for the full year. As previously noted, the MarketVector™-GammaRoad U.S. Equity Strategy Index (Bloomberg: MVGMMA Index)...

We highlighted in our November update that we expect larger directional market moves following a period when only 1 out of 3 measures is bullish for the MarketVector™-GammaRoad U.S. Equity Strategy Index (Bloomberg: MVGMMA Index). November certainly lived up to those expectations...