For the past 15 years, large-cap indexes, driven by the biggest tech and growth companies, have seen significant gains. Today, clients experience intense "fear of missing out" (FOMO), yet they are simultaneously gripped by the "fear of getting out" (FOGO).
With over four decades of experience, I have witnessed such investment inflection points before. Notable periods include the Bull market run from 1985-2000, leading into the dot-com Bear Market, and the Bull market that began in 2009 as the Financial Crisis subsided. In both instances, the adage "The Trend is Your Friend" held true until the market turned. FOMO led investors to pile into the market right up to the 2000 crash, which devastated their portfolios. FOGO stems from the financial pain of losing half or more of their investments.
Since 1924, the S&P 500 has encountered several significant corrections of 20% or more, including:
1929-1932: The Great Depression caused a decline of about 83%.
1937-1938: A severe drop of approximately 50%.
1940-1942: The market fell by around 34% during World War II.
1961-1962: A bear market saw the S&P 500 decline by around 28%.
1968-1970: The market dropped by about 36%.
1973-1974: A significant bear market with a fall of nearly 48%.
1980-1982: The market declined by roughly 27%.
1987: The Black Monday crash resulted in a 34% fall.
2000-2002: The dot-com bubble burst, leading to a decline of around 49%.
2007-2009: The Great Recession saw a drop of approximately 57%.
2020: The COVID-19 pandemic caused a swift decline of about 34%.
Source: yardeni.com
Advisors know that investors desire all the upside with none of the downside, but this ideal is unattainable in the real world. However, it's possible to capture most of the upside while limiting the downside through trend-following strategies. WBI employs quantitative trend modeling to align with index returns during up markets and switch to capital protection in bear markets.
WBI’s Trend Switch strategies aim to detect market trends using technical indicators and fundamental analysis, signaling when to buy equities or move to cash or bonds to protect capital. Five years ago, WBI’s Quant team upgraded the “WBI Switch” to the “WBI AI Switch,” utilizing machine learning for a one-week forward return prediction to enhance signal quality. This improvement allows our models to adapt better to market conditions and new information.
Timely Ideas
1. The Mag7 Trap: Advisors should be cautious about recommending investments in the Mag7 at current high valuations after their significant performance run-up. Instead, use WBI’s Trend Switch Mag7 Bond to stay with the strong upward trend of these stocks while securing downside protection.
2. Finally Time for SMIDs: The Federal Reserve is signaling potential rate cuts as early as September, which has expanded the bull trend to include small and mid-cap stocks. Historically, when these stocks surge, their performance can skyrocket like a bottle rocket. Utilize WBI’s Trend Switch 2000 Bond to capitalize on the resurgence of smaller companies, offering downside protection against heightened volatility.
3. Don’t Put All Your Eggs in One Basket: Diversify your investments with the WBI Trend Switch 3000 Bond. This strategy allows you to capture the upside across large, mid-cap, and small-cap names simultaneously, while providing protection against the next bear market downturn.
The Trend Switch strategies have incorporated AI in recent years. We believe this has significantly improved performance, instilling confidence in clients to invest in strong upward trends while helping to ensure downside protection. WBI’s Trend Switch addresses both FOMO and FOGO. We offer a comprehensive Trend Switch product line and invite you to compare our performance to major indexes and competitor products.
