Market Environment Checklist

As a former trader, I learned that market tops are generally characterized by an event and market bottoms are a process. That process can take weeks or even months.

The velocity and the associated volatility of this bear market can drive an investor to make a poor decision that could potentially impact their portfolio, and ultimately their ability to meet their long-term financial goals.

As such, the Investment team has put together a checklist of indicators to pay attention to as we go through this bottoming process:

Indicator Scale Comments
  Negative Neutral Positive  
Investor capitulation     Mixed as of now- some investors want in and others want out.
Credit stress     Likely more pain to come, particularly in short-term funding. Look for improvement.
Earnings     Down 3% ytd already, expectations are for potential decrease of 10% for 2020.
Economic data     Prepare for bad February & March data, particularly in consumer related numbers; lagging indicators however.
Fed     Rates at zero, QE4 implemented. Need to see a fiscal response.
History     Drawdown in-line with historical averages.
Momentum     Closing on lows of negative days shows downside momentum remains in place.
Safe Havens     Gold and Bitcoin trading lower.
Technicals     Looking for support levels but not oversold yet. Major damage is done, more pain possible.
Valuation     PEs coming down from elevated levels (19x), but not screaming cheap just yet.
Volatility     VIX at an all-time high. Watch for a reversal.
Volume     Not seeing increased volume on up days. Need to see confirmation.
As of March 16, 2020.

Some of the indicators will move very quickly while others may lag the stock market. Not all of them must be positive before we make an asset allocation change (including adding to equities), but the checklist serves as an unemotional tool. This is one tool, along with your managers and our network of experts to help us make sound, independent, maybe contrarian investment decisions.

We hope you find this checklist useful and would be happy to share as we update it.

If you have any questions or want to have a conversation about the market or your portfolio, please contact Liz, Ed, Fred, Scott, Tyler or myself. Your Sendero team is ready to help.

Best Regards,

Amaury de Barros Conti