Stocks at long-term structural support, plus average returns, jobs data, making back losses, and long-term investing
The Sandbox Daily (1.4.2023)
Welcome, Sandbox friends.
Today’s Daily discusses long-term structural support for a broad measures of stocks, average stock returns, the Job Openings and Labor Turnover Survey (JOLTS) report for November, clawing back portfolio losses, and the decline in long-term investing.
Let’s dig in.
Markets in review
EQUITIES: Russell 2000 +1.25% | S&P 500 +0.75% | Nasdaq 100 +0.48% | Dow +0.40%
FIXED INCOME: Barclays Agg Bond +0.55% | High Yield +1.15% | 2yr UST 4.355% | 10yr UST 3.691%
COMMODITIES: Brent Crude -4.93% to $78.05/barrel. Gold +0.79% to $1,860.7/oz.
BITCOIN: +0.91% to $16,823
US DOLLAR INDEX: -0.24% to 104.262
CBOE EQUITY PUT/CALL RATIO: 0.63
VIX: -3.89% to 22.01
No structural damage
Despite the steady barrage of selling pressure that plagued 2022, there is no real damage at the index level when it comes to U.S. equities.
The Value Line Geometric Index, which is comprised of roughly 1,700 equities listed in the U.S. and Canada, measures the price change of the median stock. For this reason, it is as good a representation as any of how the average stock is performing.
Notice how buyers stepped in to defend a shelf of prior-cycle highs near the 500 level back in October. This illustrates the principle of polarity at its finest, as resistance from almost 25 years ago has successfully turned into support.
As long as the Value Line Geometric Index is above this key level of interest, the long-term trend for equities remains intact, and the broader market is likely to continue its bottoming process. Another interesting insight gained from this chart is that the median stock has made little to no progress since 1998.
Source: All Star Charts
What average return?
Investment research and television talking heads often discuss market averages. Talking about averages is useful for context and historical perspective, but it can be deceptive when setting forward expectations with investors.
To wit, the average return on the Dow Jones Industrial Average since 1900 is +7.5%. The number of calendar years in which the return came in between 5-10% equals 11 of out a possible 123 time periods. So, the Dow has delivered average market performance less than 9% of its long and illustrious history!
Perhaps the average return does not exist…
Source: True Insights
JOLTS show labor market still tight
U.S. job openings remained elevated in November, highlighting how a resilient labor market is likely to keep the Federal Reserve tilted toward more restrictive policy in the months ahead.
The number of job openings ticked down only -0.5% in November to 10.46 million from 10.51 million a month earlier. While the number of open positions has come down from its peak level of 11.86 million in March of this year, it is still much higher than pre-pandemic when it was around 7.0 million.
The job openings-to-unemployed ratio has come down only modestly from a peak level of 1.99 earlier this year to 1.74 presently, a sign that labor market conditions remain tight. It implies that wage pressures will take a while to recede from their currently elevated rate, which may keep labor inflation high for longer.
Some 4.2 million Americans quit their jobs in November as the Quit Rate jumped to 2.7% from 2.6% in the prior month but remains below a peak rate of 2.9% earlier in this cycle. Economic uncertainty paired with recent layoff announcements at several large companies have made Americans more hesitant to leave their current roles.
The Layoff Rate was unchanged at 0.9%, matching its second lowest level on record, as businesses held onto their current staff.
Source: Bureau of Labor Statistics, Bloomberg, Ned Davis Research
Know when to cut your losses
It is easier to recover from smaller declines than bigger declines.
As the magnitude of loss increases, it takes even more upside return just to get back to even on your invested position. This simple math illustration shows the importance of downside risk management.
Knowing when to cut your losses can be more art than science, but setting downside targets or corridors can remove human emotion and establish pragmatic risk controls – improving portfolio returns over the long term.
Source: Independent Vanguard Advisor
The decline of long-term investing
Great investors think on the long term.
Warren Buffett once said, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
Source: Compounding Quality
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.