12 Days of Christmas: Themes to Know for 2017

On the 8th day of Christmas, we discussed one of the key RS charts we keep a watchful eye on – the S&P 500 Index SPX versus the iShares US Core Bond ETF AGG chart. This chart is meant to serve as a generic proxy for measuring the relative strength relationship between the two most commonly used asset classes in investors’ portfolios – US stocks (represented by the S&P 500 Index) and Bonds (represented by the iShares US Core Bond ETF). The reason it has become a meaningful chart over the years is because it has historically provided us with signals that are both timely and valuable. On November 9th, this chart gave a buy signal, telling us that US Equities have taken back the baton as we move in to the New Year. Before this buy signal, the chart had favored bonds since February. During that time we would have expected to see the AGG outperform the SPX. However, when all was said and done, the opposite was true. We review that relative strength as not fail proof. It is “self-correcting” and it is always about the “weight of the evidence.” While it is still too soon to measure “success” on this recent RS buy signal, it is one more drop in the bucket for the positive weight of the evidence towards US equities moving into 2017.