Jim Neidelman:
Time now for our latest installment of 4 Your Money. We’re joined once again by David Nelson, CEO of NelsonCorp Wealth Management. Always great to see you, David.
David Nelson:
Thank you, Jim. You as well.
Jim Neidelman:
So we’re going to talk about stock market and progress that we’re seeing there. Certainly halfway through the year of 2021, stocks certainly have made a lot of gains so far this year in positive territory, as you like to say. In the context, I guess, of the current market cycle, where would you say we are right now?
David Nelson:
So it’s a real common question as far as people wanting to have a gauge. I mean, are we in the seventh inning? Are we in the second inning? Where do we stand as far as the baseball analogy? And so every cycle is different, so you never really know. But you can look at past patterns and maybe come up with a fairly accurate answer. So if we look at past patterns, what we see is that there’s essentially three periods. So you’ve got the early part of the uptick, and that’s typically where the stocks that have been really bad or have been beaten up are going to be the ones that pop and pop significantly as far as in the early stages. Oftentimes, that’s small caps and things that are more volatile.
David Nelson:
Then you move to the mid-cycle phase. The mid-cycle phase is typically where the stocks that had prior to the run-up as far as would be with the ones that were out of favor typically start rallying, which we’re seeing right now as far as with technology. And then the final phase is the one where investors get more cautious and nervous. And you see the defensive positions, utilities and consumer staples, things of that nature rallying. And so if we were to summarize this, I would say we’re in the late stages of the early, the number one segment, or we’re in the early stages of number two. So we’re somewhere in that gap. Clearly not in the late cycle overall, but probably in the middle of the first two cycles.
Jim Neidelman:
All right. So where can investors, people watching at home, look for clues when it comes to potential turning points?
David Nelson:
So this chart that I brought is going to be a great visual as far as for people to look at. So let’s start with the blue line. What the blue line is illustrating is a comparison between global stocks and global bonds. And when you see the blue line moving up, which it is most of the time, that’s when stocks are winning. When you see its circle, like we have on there on the top, and the line is dipping down, that’s when the bond market was outperforming. So that’s one set of tools. On the bottom, we have a whole different one. This is really outstanding. And this tool has been very effective as far as trying to look at opportunities as far as to exploit, either selling or buying.
David Nelson:
It’s called the SHUT index. And so what the SHUT index is looking at is consumer staples, healthcare, utilities, and telecom. And so when we see the SHUT index, so go to the far right, and you see the line going down? That means those defensive type positions aren’t performing quite as well as the general stock market. And when you see it going up, it means that people got really defensive and those sectors are actually outperforming compared to the overall market. So this is a really great tool.
Jim Neidelman:
That is certainly interesting. So help us, for the common layman like myself, what types of investment decisions can this type of analysis help make?
David Nelson:
Yeah. What it does is trying to get people on the right side of the trade. And when we want to be defensive, we want to think in terms of either the bond market, or we want to think in terms of utilities and consumer staples, which historically have outperformed as far as in those type of environments. So we’re always trying to identify, as risk managers, because that’s basically what we do. We’re out to try to identify those. And these type of tools are essentially what we use as far as to take advantage of it. So clearly, these are the type of tools that people should be contemplating and using as far as in their particular situation.
Jim Neidelman:
David Nelson, CEO of NelsonCorp Wealth Management. Great insight as always, David. Thanks.
David Nelson:
Thank you, Jim.
Jim Neidelman:
And in case you at home missed any of this discussion, we have it available for you online at ourquadcities.com.