The Matrix
What is it?
While “The Matrix” is a classic movie, what we’re talking about is a tool we use to help identify the trend and momentum of various investment data points. In the example below from the middle of last week. You can see that UUP (Invesco DB US Dollar Index Bullish Fund) was in a strong positive trend based on our analysis. That, along with the positive momentum (shown by the green cell color) puts UUP at the top of the Matrix.*
Why does it matter?
We can contrast UUP with VT (Vanguard Total World Stock Index Fund) shown in the weak trend strength section at the bottom of the Matrix.** Using the Matrix we can get a snapshot of various assets in one spot. To look at things in greater detail we analyze the charts on the weekly, daily, and 4 Hour charts. More analysis may be done when a security is around the weak and neutral line or in the overbought section. At those times it is more likely for a trade to take place. For those reasons (among others) we do not plan on buying any VT until it has a stronger trend. Below you can see how an asset like UUP (Orange) performed lately compared to a weaker trend strength asset as of late being VT (Blue).
Year to date (as of 5/5/22) UUP was up 7% compared to VT being down 12.6%.
Update on the Fed.
What is it?
The Fed raised interest rates by 50 basis points (0.5%) as expected.**** Like many other times, the markets were calm and cautious before the Fed speech last Wednesday. As the speech went on it became clear that the Fed is focused on inflation and the labor market as key factors in their decision making process.
Why does it matter?
Markets rallied after Fed Chair Jerome Powell mentioned a 75 basis point increase is unlikely to occur at the next Fed meeting.**** If interest rates were to rise higher, sooner then that would likely have a negative effect on the overall performance of the stock market. The Fed is looking to use its tools to get inflation under control while maintaining a strong labor market. If they are able to do so we could see a steady landing back towards historical averages in terms of stock market returns. Done incorrectly, the fed could cause more of a crash landing in asset valuations that were inflated during the pandemic.
Other articles we found interesting this week:
S&P 500 reverses Wednesday’s post-Fed gains, back under 4,200 as yield rally batters tech
Elon Musk, Cathie Wood Say Passive Funds Have Gone Too Far
Billionaire War: Gates Has Concerns About a Twitter Led by Musk
Current 401(k) portfolio
Our last portfolio reallocation: 4/11/2022.
Want more information?
The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach.
Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
Click here for more details about our investment management
Sources:
*Yahoo Finance. “Invesco DB US Dollar Index Bullish Fund (UUP)”. 5/5/2022. Yahoo Finance. https://finance.yahoo.com/quote/UUP?p=UUP&.tsrc=fin-srch
**Yahoo Finance. “Vanguard Total World Stock Index Fund (VT)”. 5/5/2022. Yahoo Finance. https://finance.yahoo.com/quote/VT?p=VT&.tsrc=fin-srch
***Yahoo Finance. “UUP Chart”. 5/5/2022. Yahoo Finance. https://finance.yahoo.com/quote/UUP/chart?p=UUP
****Federal Reserve. “Recent Developments”. 5/4/2022. Federal Reserve. https://www.federalreserve.gov/
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