Seasonality Turns Favorable

As we discussed in our September commentary & Third Quarter 2021 Review, we viewed the 5.9% decline in the S&P 500 in September and early-October as a normal pullback within an ongoing bull market not the start of a deeper correction or bear market. Our thinking was based on the bullish message from our macro models, signaling that the longer-term uptrend remained intact, and the fact that the decline was occurring during the fall, a timeframe that often sees some degree of seasonal weakness that proves temporary.

Accordingly, we maintained the bullish positioning in all our strategies (that we have had since last spring) during the 3Q’21 and thus far into the 4Q’21. Our bullish positioning has been rewarded, as the stock market (as measured by the S&P 500) has rebounded 7.9% thus far in the fourth quarter. All VGA strategies are benefitting from the fourth quarter rebound with several of our more aggressive equity strategies continuing to track well ahead of the S&P 500. Below, we highlight VGA’s Optimized Equity Alpha strategy which has gained 11.5% thus far in the fourth quarter, bringing its 2021 cumulative return to 32% vs. the S&P 500’s 24.7% year-to-date gain.

Source: Bespoke

While not formalized in our investment process, most historic analogs remain positive through year-end. The table below shows years since 1945 in which the S&P 500 has posted a gain of 20% or more through the end of October. As shown, strength typically begets strength as the S&P 500 has gone on to post a further gain of 6.0% on average through year-end. Also of note is the fact that 100% of all instances posted positive returns. In other words, in years like 2021, there’s no historic precedent for a bear market through year-end.

Source: Bespoke

As always, our objective indicators guide our investment process, and they remain bullish. VGA strategies remain at-or-above benchmark exposures to participate in further anticipated upside through year-end. Should the “weight of the evidence” change, we will adjust accordingly, but we continue to expect a good year and a strong finish for investors in 2021.

We appreciate the trust you have placed in VGA to manage your wealth and are available by phone or email for any questions or comments.

Respectfully,

VGA Investment Team
Nov 2021

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