Summary
- Applying multi-factor portfolio models has outperformed the S&P 500 in live forward testing for nine years here on Seeking Alpha.
- Current market signals and sector rotations echo 2022, suggesting value and dividend strategies may soon outperform growth-heavy segments.
- Proprietary momentum gauges indicate negative signals in key sectors, with bear funds in financials and technology delivering strong YTD gains.
- Negative momentum persists in technology and financial sectors, prompting tactical use of bear funds and heightened monitoring for liquidity risks.
- We can apply proprietary models and sector rotations to consistently outperform the S&P 500, focusing on value, momentum, and behavioral finance strategies.
Introduction
“The goal of forecasting is not to predict the future, but to tell you what you need to know to take meaningful action in the present” ~ Paul Saffo
Timing matters, and it matters greatly. I have spent the last 35 years trading, researching, and constructing algorithms to identify and leverage the value across fundamental, technical, and behavioral finance models. Of the ten portfolio models designed for optimal portfolio mixes for members to beat the market at Value & Momentum Breakouts, eight come from enhancing well-tested anomaly research in published financial journals. All of the models continue to outperform the S&P 500 in live forward testing here on Seeking Alpha, and again this year.
If This is a 2022 Market Repeat, Here is What Happens Next
First, let me be clear that I am not under any illusion that 2026 is identical to 2022, nor that making comparisons of two completely different time periods is not without a myriad of flaws. This article is intended to capture and share a large number of significant similarities and show you what we are doing to beat the markets again this year in our 9th year on Seeking Alpha.
As I write this article, the US and Israel are launching air strikes against Iran over the weekend, and I have no idea what future events may unfold from this last day of February. I am reminded that back in February of 2022, the world was shocked by the Russian invasion of Ukraine that continues as a terrible conflict today, more than four years later.
The structure of this article will begin with a broad macro perspective that progresses to more sector details and shorter time frames. Within each section I will share some of the models, signals, and portfolios we are using to beat the markets again this year. Any one of these following sections could be an article by itself with much more detail than we discuss daily in our community. Instead, I will let the charts do most of the talking as succinctly as possible.
The Macro Perspective
From the macro perspective, I begin with a look at the S&P 500 from 2020 through this past week. Overlayed on the S&P 500 chart are two Fibonacci retracement models comparing past and present similarities with future price supports.
This technical price model suggests that market moves follow the Fibonacci sequence, and in downturns, look for supports at the levels indicated. In 2022, the S&P 500 declines followed the retracement to -50% declines around the 3,500 support level, but not before testing the -23.6% level first at 4,200. If such a repeat were to occur in 2026, we would expect the first retracement to the 6,500 support levels as illustrated in the chart.
As I have shared in prior market forecast articles about a strong market rotation, there are also other strong macro similarities forming back to 2022.
