Market Update 6/16/23

Market Update 6/16/23
June 16, 2023 phillip_toews_1p9l0e9h

Subject: Toews Position Update

Momentum Drives Markets Higher

I wrote my last update as we approached debt ceiling drama with no certainty a deal would get done, or be done in a timely fashion. In the scenario analysis at that time, I presented a potential “Rosey Scenario” that a deal would be reached, creating a path higher for stocks and high yield bonds, while posing potential challenges for investment grade bonds. Fortunately for the earth dwellers, it seems that this scenario appears in play, with stock surging higher in the past few weeks.

Throughout this period, including the lead-up to the debt ceiling ex-date, we’ve remained fully allocated to stocks. Our high yield bond positions were exited prior to the decision but shifted back to a bullish posture between June 2nd and June 5th. Although our AGG bond positions are defensive, since those buys, we are in a fully bullish posture across our platform.

Market Environment

There is no doubt many investors and advisors have remained cautious this year following a fairly brutal 2022 investing landscape and attractive T-bill yields. However, with the S&P 500 stretching close to 15% YTD, those cash yields begin to look decidedly less appealing on a relative basis. At the moment, we appear to be back in the familiar place of highly valued stocks being driven by demand and animal spirits. We welcome this move.

One faulty judgement that the market is currently making, in our opinion, is the view that the Fed will lower rates coming into year-end. Unless unemployment increases significantly (above 4.5%) in the coming months, we believe this is unlikely. The likely alternative, in the absence of economic deterioration, is that yields on the long end trend higher. This would cause conventional, Investment grade bonds to decline, potentially returning to break-even for the year.

However, it may not mean an end to gains in stocks and high yield bonds. If they have been able to rally as rates increased 5% over the past 18 months, we see no reason why they wouldn’t be able to continue this trend if we see yields increase by another 0.5% into year-end.

As always in overvalued markets, we recommend staying agile. The next challenge may be ANOTHER conflict over budget negotiations this fall.

Phil Toews

Recent Trades and Current Positions:

Between June 2 and June 6 we moved into a fully bullish posture in our adaptive fixed income allocations, with allocations into High Yield Bonds.

High Conviction Tactical Models1,2:
Developed International Stocks: 100% Invested
High Yield Bonds:  100% Invested
US Stocks: 100% Invested
Investment Grade Bonds:  100% Cash Equivalents
Managed Risk: Approximately 10.5% out of the money at Friday’s market close (LEAP on SPX Futures Put strike price)

Equity Portion of Defensive Alpha Models1:
100% Bullish Posture

All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.

This commentary is intended to provide general information only and should not be construed as an offer of specifically-tailored individualized advice, and no representation is being made as to whether the information provided herein would be beneficial for any or for a specific Employer Benefit Plan or investor.

For additional information about Toews, including fees and services, send for our disclosure statement as set forth on Form ADV by contacting Toews at Toews Corporation, 1750 Zion Road, Suite 201, Northfield, NJ 08225-1844 or (877) 863-9726. 5757698 MK

(1)These include the Toews Capital Preservation, Balanced, Balanced Income, Balanced Growth, Growth, and All Equity, High Income, Balanced Income, and Conservative Income portfolios. They do not reflect the allocations of these strategies that are not allocated to Toews Funds.
(2)Exposure to vehicles invested in the listed asset classes