September 2024 barometer update
Eurozone inflation has reduced leading to expectations of a rate cut. European markets have reacted strongly. The FTSE is following suit closing above 8400 this month in spite of the impending budget and the likely strain on public finances.
The Sector Rotation Clock has advanced within the Mid Expansion zone in the cycle. It is being pulled forward by the defensive stance taken by markets given the current fears about hard and soft landings.
As a result, the late phase sectors in the Contraction zones have become bullish. However the second phase of the 18.6 year Real Estate Cycle does not move that quickly and will take a few years to play out. I estimate that we are currently at around 4 pm in the cycle.
To summarise the indicators:
The Barometer has reduced again to 0.
The Hi-Lo-Grometer is now in the light green zone. It is safe to buy stocks.
The US Treasury Yield indicator has remained heavily inverted and is still below the -150 points zone. The anomaly continues.
The Sector Cycle is advancing and I am expecting stock markets to rally this autumn.
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August 2024 barometer update
There has been a rotation out of high growth US technology stocks into smaller cap and high growth non-technology stocks. As a consequence the FTSE is holding its position more strongly than the Nasdaq index which has slumped. In spite of this, the Sector Rotation Clock has remained at Mid Expansion in the cycle.
Here is the clock but with no change from last month:
To summarise the indicators:
The Barometer has reduced slightly to +1.
The Hi-Lo-Grometer is still in the amber zone. It is not safe to buy stocks.
The US Treasury Yield indicator has remained heavily inverted and has fallen beyond the -150 points zone. This is still an anomalous reading as far as I am concerned.
Once again the US Treasury Yield indicator is at odds with the positioning of the sector cycle. Which one is right? I’m betting on the latter.
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July 2024 barometer update
The US market has been dominated by “pure-play” AI stocks such as NVidia. However the UK market has seen an uptick in the quantity of mergers and acquisitions. In spite of this the FTSE 100 has been largely flat during the month. The Sector Rotation Clock has remained at Mid Expansion in the cycle.
Here is the clock but there has been no change to the bullish and bearish super-sectors:
To summarise the indicators:
The Barometer has reduced slightly to +2.
The Hi-Lo-Grometer has dropped into the amber zone. It is not safe to buy stocks.
The US Treasury Yield indicator has remained inverted but has fallen towards the -120 points zone. This is still an anomalous reading as far as I am concerned.
There is increasing bullish sentiment in the markets at the moment but there is still a lot of money remaining on the sidelines. If those investors can be persuaded to invest, we should see a push up in the markets.
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June 2024 barometer update
World indices have experienced profit taking during May. However the last two trading days of May have seen prices increase. The Sector Rotation Clock has advanced to Middle Expansion in the cycle.
Here is the clock with the bullish and bearish super-sectors updated:
The super-sector Telecomms has moved to neutral from bearish, thereby unlocking the path (in my opinion) into Middle Expansion. This is not an exact science as sector ratings can change or even reverse. Confirmation of Middle Expansion will follow once Technology changes to neutral. However, that could take a long time.
To summarise the indicators:
The Barometer has remained at +3.
The Hi-Lo-Grometer has remained in the light green zone. The 52-week highs and lows both exceed 100.
The US Treasury Yield indicator has remained inverted but has fallen to the -100 points zone. I would expect this indicator to cease to be inverted once we are solidly in the Expansion phase. The current read out doesn’t fit in with previous cycle patterns.
The positive activity in stock markets will be needed to overcome the usual summer lethargy. Markets are fixated on rate cuts even though history has shown that bull markets are usually accompanied by rising rates, primarily to reign in over heating economies.
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May 2024 barometer update
How things have changed for the FTSE 100! In April it made 2.4%. In comparison, the Japanese Topix made -0.9%, the German DAX -2.0%, the Nasdaq -2.4%, the S&P 500 -2.6% and the Dow -3.6%. The Sector Rotation Clock hasn’t changed from Early Expansion in the cycle.
Here is the clock with the bullish and bearish super-sectors updated:
The super-sectors Materials, Energy and Healthcare have all advanced to their next level, either becoming bullish or moving from bearish to neutral.
To summarise the indicators:
The Barometer has climbed to +3.
The Hi-Lo-Grometer has remained in the light green zone. The 52-week highs and lows both exceed 100.
The US Treasury Yield indicator has remained inverted but has risen to the -80 points zone.
The US markets appear to be recovering from their recent dip. However the FTSE seems to be benefiting from renewed mergers and acquisition activity. There are currently seven ongoing bids for FTSE 350 companies against two for the whole of 2023. This momentum should continue to generate new highs.
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April 2024 barometer update
The MSCI World index has shown a gain in the first quarter of nearly 8%. This is the best quarterly performance for world stock markets for 5 years. The best region was Japan where the Topix made 16%. In comparison, the US S&P500 made 10% and the FTSE100 a mere 3%.
The Sector Rotation Clock continues to point to Early Expansion in the stock market cycle. However, I have wound this back slightly due to the bullish performance of Financials which would normally be associated with the Late Contraction phase of the cycle. Here is the clock with the bullish and bearish sectors updated:
According to the Barometer the Consumer Discretionary sectors that are worth examining are still Household Goods, General Retailers, Media and Travel & Leisure. I have now purchased shares in an AIM-listed travel company. Fingers crossed!
To summarise the indicators:
The Barometer has remained at +2.
The Hi-Lo-Grometer has remained in the light green zone. The 52-week highs and lows both exceed 100.
The US Treasury Yield indicator has remained inverted in the -120 points zone.
The first quarter performance usually predicts the remainder of the year. However the FTSE still has a lot of catching up to do.
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March 2024 barometer update
World stock markets have made significant gains since the start of the year. However the FTSE 100 has been choppy in comparison and flat during February. Seasonality trends point to there being a low in March.
The Sector Rotation Clock continues to point to Early Expansion in the stock market cycle. Technology and Consumer Discretionary top sectors confirm this by being bullish. Here is the clock with the bullish and bearish sectors updated:
The dial continues to sit on the edge of Early Expansion. The top sectors which benefit from this stock market phase are Technology and Consumer Discretionary.
According to the Barometer the Consumer Discretionary sectors that are worth examining are still Household Goods, General Retailers, Media and Travel & Leisure. I am looking to purchase an AIM-listed travel company.
To summarise the indicators:
The Barometer has fallen slightly to +2.
The Hi-Lo-Grometer has returned to the light green zone. The 52-week highs and lows both exceed 100.
The US Treasury Yield indicator has risen further to above -120 points. Will it continue to rise until it ceases to be inverted?
The seasonality trends indicate that there should be a pull back during March. However there should be a good buying opportunity once that low has passed.
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February 2024 barometer update
As expected, the FTSE 100 overextended itself during December and fell 300 points by mid-January. Since then it has done its best to make up this loss by closing at 7645 at the end of the month.
The Sector Rotation Clock continues to point to Early Expansion in the stock market cycle. Technology and Consumer Discretionary top sectors confirm this by being bullish. Here is the clock with the bullish and bearish sectors updated:
The dial has not moved since January and remains on the edge of Early Expansion. The top sectors which benefit from this stock market phase are Technology and Consumer Discretionary.
According to the Barometer the Consumer Discretionary sectors that are worth examining now are Household Goods, General Retailers, Media and, this month, Travel & Leisure. I have purchased a FTSE 250 house builder putting my money where my mouth is!
To summarise the indicators:
The Barometer has risen further to +3 as more sectors turn bullish.
The Hi-Lo-Grometer has moved back into the amber zone. This is the first time I have seen 52-week highs > 100 alongside 52-week lows > 100. The lows just exceed the highs. This implies a strong polarity within the stock market.
The US Treasury Yield indicator has now risen to above -150 points however there is a long way for it to go before it ceases to be inverted.
Last month I said “By January the stock markets will become over-bought and may need to consolidate before moving upwards once again”. The market has pulled back during January and hopefully has resumed its course upwards.
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January 2024 barometer update
The market is confident that the Federal Reserve will engineer a soft landing. This has resulted in a Santa Claus Rally. The US indices are all bullish while the FTSE 100 is neutral positive.
The Sector Rotation Clock is pointing to Early Expansion in the stock market cycle. Technology and Consumer Discretionary top sectors confirm this by being bullish. To reiterate, the cycle is as follows:
| Market Phase | High performing Sectors |
| Early Expansion | Technology, Consumer Discretionary |
| Middle Expansion | Telecommunications, Industrials |
| Late Expansion | Materials, Energy |
| Early Contraction | Consumer Staples, Healthcare, Utilities |
| Late Contraction | Financials, Real Estate |
As I did last month, I have examined each sector in the Investment Barometer to see whether it is bullish or bearish. I have coloured these sectors green or red accordingly. I have updated the Sector Rotation Cycle Clock to illustrate this.
The dial has wound round slightly towards the edge of Early Expansion. The top sectors which benefit from this stock market phase are Technology and Consumer Discretionary.
According to the Barometer the Consumer Discretionary sectors that are worth examining now are Household Goods, General Retailers and Media. I shall keep an eye on these as we move through the cycle.
To summarise the indicators:
The Barometer has risen to +2. This is the result of many sectors turning bullish.
The Hi-Lo-Grometer has moved into the light green zone (i.e. we are safe to buy stocks).
The US Treasury Yield indicator has dropped further to below -150 points which makes this reading anomalous when viewed against the others.
By January the stock markets will become over-bought and may need to consolidate before moving upwards once again. Keep an eye on the Consumer Discretionary sectors I mentioned above and wait for the market to pull back slightly.
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December 2023 barometer update
I have done some more research on sector rotation theory. This aims to predict which sectors are likely to be favourable for investing at different stages of the investment cycle.
There are five phases of the investment cycle each of which are associated with outperformance of different sectors. These are as follows:
| Market Phase | High performing Sectors |
| Early Expansion | Technology, Consumer Discretionary |
| Middle Expansion | Telecommunications, Industrials |
| Late Expansion | Materials, Energy |
| Early Contraction | Consumer Staples, Healthcare, Utilities |
| Late Contraction | Financials, Real Estate |
I have examined each sector in the Investment Barometer to see whether it is bullish or bearish. I have coloured these sectors green or red accordingly. I have created a Sector Rotation Cycle Clock which illustrates this.
I examined the sectors and have determined that we are at the beginning of the Early Expansion Cycle where Technology is outperforming. To validate this, I wound back the Barometer to April 2022 where Healthcare, Utilities, Financials and Real Estate were all bullish thus marking the Early to Late Contraction phases.
Of course there are many anomalies in this theory e.g. Energy is outperforming and I don’t believe it’s currently Late Expansion, but it should be possible to look out for the next phase’s choice sectors i.e. Telecommunications and Industrials as part of Middle Expansion. I will comment on this in the months to come.
The FTSE 100 has settled down to close the month mid-way between its 7250 support and 7700 resistance levels. Miners have reacted positively to improved Chinese data. The US stock market believes that the Federal Reserve’s tightening phase is coming to an end.
To summarise the indicators:
The Barometer has risen 0. The first time that it has not been negative since May.
The Hi-Lo-Grometer has remained in the red zone (i.e. we are still not safe to buy stocks).
The US Treasury Yield indicator has dropped back to below -100 points which is not encouraging.
If I’m right that we are at the beginning of a new cycle, we could see some outperformance during 2024.
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