The winners and losers from central bank stimulus

September 29, 2024 at 13:29 PM EDT

Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.
The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
Trend Model signal: Neutral (Last changed from “bullish” on 26-Jul-2024)*
Trading model: Neutral (Last changed from “bearish” on 19-Sep-2024)*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.

Subscribers can access the latest signal in real time here.

Stimulus!

The market has seen a number of shocks from global central banks. First, the Federal Reserve announced a jumbo half-point rate cut. The bigger surprise was the package of unanticipated stimulus measures from the PBOC. This was followed by a pledge from Beijing to support the economy with fiscal measures. Here is a review of the winners and losers. The biggest winner has been gold, which has benefited from falling real rates. Gold broke out to fresh all-time highs, not only in USD, but also in many other currencies. Most notably, it achieved a new high in Swiss Francs (CHF), which is known to be a hard currency.

The full post can be found here.