Video Transcript:

Good afternoon everyone. Brent Chavez, Aequitas Equitas Investment Group. I just want to get a video out to all of you kind of updating our positioning and our portfolios.

Several weeks ago I sent out a video talking about taking a more defensive position for the reasons I had outlined at that time. Move forward a couple weeks, we’re still in that defensive posturing with our portfolios for the reasons we outlined. I’m going to share a little bit more on that I will have a more extensive video, hopefully out next week to all of you, highlighting a lot more things that we’re looking at that make us want to be a little cautious at this time. Again, we’re not saying that the markers are falling off a cliff or 2008 is coming or that we actually know what tomorrow is going to bring in the markets, we just don’t know for sure anything. But we do want to use the data to make educated decisions on why we have the particular stand that we do in our portfolios. 

So, a couple things we’re going to talk about today are the Dow Jones and S&P 500. The Dow Jones and S&P 500 the last several weeks have been hitting these all time highs and continuing. Why is that the case? Why aren’t things then so great? 

Well, here’s what we’re looking at… the Dow Jones, for example, it’s hitting all time highs and that’s industrial companies, 30 of them, that make things for America and for the world. Well there’s another index called the Dow Jones Transport. The transports are the companies that move the goods that the Dow Jones industrial companies make. So they should pretty much stay together, lockstep, moving up. And we’re not seeing that with the transports. The transports are not confirming this high in the Dow Jones Industrial.

The Dow Jones this last year has returned 13%. The Dow Transports have returned 2.4% as of the filming of this video. Again, we’re seeing a divergence in the charts. And so what we’re talking about is a lot of technical stuff, not necessarily fundamental outlooks on the markets… but we do pay attention to those technicals and we firstly feel it’s very important to not just dismiss them as not being relevant. So that’s one area we see some a little bit of concern.

Back in ‘08, that was actually a big red flag for what was happening in the markets, the transports never confirmed the Dow Jones setting highs back then. 

Now let’s go to the S&P 500. The S&P 500 is seeing just a small group of companies doing the heavy lifting in that index. That’s not healthy for a sustainable bull market. We need all sectors to participate. 

What do I mean? Well, you can’t have oil hitting lows, crashing in the last month. You can’t have financials not participating in the rally. It’s not healthy. We need to see some participation from other areas rather than just the few mega caps that are doing the lifting right now in the S&P 500. We want to see this rally spread across sectors and industries. And again, we’re not seeing confirmation.

We look at the financials, that this thing has got a lot of legs at this point, financials continue to hit against highs that they hit back in ‘08, and then back in ‘16 and then bounce and then full back – they’re hitting against resistance or all-time highs. We need to see them break through.

We have regional banks hitting all-time lows against the S&P 500 and the S&P is taking off. Not healthy. We need to see participation in more than just one or two areas of the market.

We are also looking at Bond inflows that are massive around the globe. People are really running and buying bonds again. Not something you would want to be seeing if you feel that there’s a big move about to take place in the equity. We see yields on bonds coming under tremendous pressure, looking that we may be seeing some lows that will be lower than we saw in ‘16 and 2012. And the yields on treasuries… we’ve already seen it in the 30-year Treasury. Again, not signs that the markets are about to rip and take off in a sustainable way. 

So, we want to be more defensive. We talk about less and less companies participating and moving up. There’s an advanced decline index that really tracks the number of companies that are hitting all-time highs… and yet again, we’re seeing another divergence. That number is less than less while the S&P continues to go up. Not healthy for a sustainable upward move. 

So, because of that we’ve decided, we’ve had a big year last year. Let’s stay neutral. Let’s look at some areas that we can make some money still with what’s happening. And, we’ve done that the last several weeks in treasuries. We’ve been able to do that in utilities. Very defensive positioning. Municipal bonds. Very defensive positioning. 

We see assets that are having tons of inflows suggesting that the picture isn’t as “rosy” as these record highs make everyone believe that it is. So, we’re looking underneath the data. There’s a lot more technical analysis that we’re looking at that is concerning for us to just say, “hey, everything’s great,” – like we were saying for the past year – that we’d “stay the course and your patience will pay off,” and, we would get some decent returns. That’s not the case right now.

So, again, step back, big picture… I believe that we are in a bull market that will continue once some of these issues, get worked out, and we see the Coronavirus get put to bed and we know exactly what type of disruption that’s going to cause in the economy and into profits in companies. This is Tuesday afternoon and we’re starting to see a little bit more light to what’s going on with that – Apple reported some decreases in profitability because of the Coronavirus. We are seeing China come with a little bit more clarity as far as what’s going on there. Again, I’d like to see some of that play out and I’d like to see some of the technicals of the market, do better… that we get moves not just by a few of the big boys… I want to see that through these different sectors. 

Thank you all. I just wanna let you know we’re working hard. We are diligent in what we’re looking at. We appreciate having all of you as our clients. If you have any questions, concerns, feel free to reach out to me. I will be out in the office for the next several days on some training and software in Kansas. I’ll be back in the office next week but you can always reach out to me via email or get a hold of Kelsey if you need to talk to me and I will get in contact with you soon as possible. But otherwise, have a wonderful day. I look forward to speaking with you very soon. Take care.