Tactical Asset Allocation – March 2024

Tactical Asset Allocation Strategies Update

Strategy: Adaptive Global is a broad tactical asset allocation strategy that invests in global equities and averages a 36% position in fixed income. Adaptive Global finished the month with a gain of 2.30% and a gain of 5.34% YTD.  Adaptive Global is our most broadly diversified “go anywhere” strategy with a 24 year CAGR of 13.8%, a low maximum monthly drawdown of 7.7%, and a low 9.3% standard deviation of monthly returns.

Comment: Adaptive Global’s equity positions in S&P 500 Growth, S&P 500, and Asia Pacific performed strongly as did the fixed income position in US investment grade bonds.


  • Global equities: ETF Vanguard World Stock Fund (VT) finished the month with a gain of 3.19% and a gain of 7.83% YTD. It has a 24 year CAGR of 9.1%, maximum monthly drawdown of 49.2%, and monthly standard deviation of 18.1%.
  • 60% equity/40% bond: Vanguard Balanced Index Fund (VBINX) finished the month with a gain of 2.27% and a gain of 5.68% YTD. It has a 24 year CAGR of 6.3%, maximum monthly drawdown of 32.6%, and monthly standard deviation of 9.8%.

Strategy: Adaptive Income is a fixed income tactical asset allocation strategy. Adaptive Income finished the month with a gain of 0.88%% and a gain of 1.85% YTD. With a 24 year CAGR of 9.2%, this strategy captures $6 dollars of gain for every $1 in loss. Adaptive Income sports our lowest maximum monthly drawdown of 3.9% and our lowest volatility with a monthly standard deviation of just 4.1%.

Comment: High Yield Munis and Senior Loans were both up nicely for the month.

Benchmark: The iShares Aggregate US Bond Fund  (entirely investment grade) finished the month with a gain of 0.90% and a loss of 0.74% YTD. It has a 24 year CAGR of 3.7%, maximum monthly drawdown of 17.1%, and monthly standard deviation of 4.4%.

Maximum Monthly Drawdown: this is the difference between the bull market monthly closing high and the bear market monthly closing low.

For details, see the links below to strategy descriptions, charts, and tables or the Insights page.



Greek mythology tells us of Icarus who was warned by his father not to fly too close to the sun because the feathers on his wings were affixed with beeswax. Hubris got the better of caution, the beeswax melted, and Icarus fell to the bottom of the sea. The current state of the markets brings Icarus to mind.

Recency bias is leading a growing number of investors to once again ignore rapidly growing risks in both equity and credit markets. As the markets probe the outer edges of the gains to be had, the risks of reversion are spiraling higher.

  • Valuation: With a PE10 of 35, the S&P 500 is priced at more than twice its long term average of 17 while the Market Cap to GDP ratio sits at a stunning 189%; more than double its long term average of 85%.
  • Financial conditions: Focus on the Fed’s every utterance in hopes of easier money ignores the fact that credit conditions are historically loose. For example, spreads to Treasuries on US, European, and Emerging Market high yield bonds are approaching some of the tightest conditions seen in the past 35 years.
  • Equity momentum: Every dip is being bought relentlessly. During the past 28 weeks, the largest correction has been a whopping 2% correction lasting 7 trading days.
  • Psychology: Behavioral psychology, not fundamentals, is the single greatest contributor to bull and bear markets. Exuberant investors bid earnings multiples higher while fearful investors send earnings multiples lower. Current PE ratios testify to investor exuberance.
  • Concentrated fund flows: By now, anyone taking a breath is likely aware that the market has been led upward by demand for a handful of stocks dominating passive index funds. Few are considering the reverse effects of passive fund outflows.

While there are few, if any, signs of an imminent market decline, the envelope has been pushed far enough to warrant considerable caution. Especially so in light of the growing sand pile of global risks which appear to be unrelated to fiscal and monetary policy not to mention the growing stresses of domestic fiscal deficits.

Full Cycles

Our website is chock full of performance charts and tables; however the two most valuable charts cover our returns and drawdowns across four market cycles. They should not be missed:

Market Monitor

Note: Market Monitor is a structured weekly process of compiling and analyzing critical information about the health of the markets. I've been doing this for nearly four decades. These are personal observations which have no effect on the TAAStrategies.

From the March 29th Market Monitor

All major indexes rose this week except for the Nasdaq 100 (tech stocks appear to be taking a nap). Indexes are bullish with bearish divergences on both an intermediate and short term basis. This is suggestive of another correction; however recent corrections have all been minimal. We have a minor target at SPX 5449 and a major target at 5639. More about 5639 later. Initial support for the S&P 500 is 4890 (gap close) with stronger support at 4820.

Both short term and intermediate term Cumulative Advancing Declining Volume strengthened again this week. We are continuing to see sector rotation in CADV as well as price. 8 of 12 sectors are bullish with only Info Tech, Transport, Health Care, and Telecom lagging. This indicates a broadening of the advance.

Market Breadth Ratios (SPX equal weight vs cap Weight , S&P 500 vs S&P 100, Ru2000 vs S&P 500, Nasdaq Comp vs Nasdaq 100, Nasdaq 100 equal weight vs cap weight) improved this week confirming the broadening of the advance.

The Credit Market Index remains at a very bullish 63% this week. This means that monetary conditions are very loose and favorable for equities. We are seeing some of the most accommodating credit conditions during the past 35 years. This also means that risk premiums in the credit markets are once again approaching historical lows.

The 10 year Treasury fell 1 basis points to 4.21% settling on the top of support in the 3.80%-4.20% range. Yield has clearly broken out above the 3.80% - 4.20% range and appears to point directionally upward threatening a higher high at 4.42%, possibly 4.55%

Across other metrics

  • One VIX Model remains on a buy signal while the second remains on a  sell signal (neutral)
  • The Short Term Breadth Model is now confirming the later stages of this rally (risk on)
  • My Offense Defense indicator is turning neutral (neutral)
  • The growth/value ratios have shifted back from value to growth  (risk on)
  • The Speculation Index is flattening (neutral)
  • Big 8 “tech” stocks: 4 are bullish, 3 are bearish, 1 is neutral (neutral)
  • Inflation expectations are flattening (neutral)
  • The 10 year/3 month Treasury spread has widened to -1.00% vs its -1.63% low.
  • Industrial metals, petroleum, and precious metals are rising.
  • The US Dollar is breaking above the apex of a wedge. This bears watching as the dollar and yields have recently moved together directionally. The 100 level is important dollar support.
  • The put/call ratio remains high at 119% (bullish)

Monetary conditions remain extremely loose and supportive for equities. There is little to suggest that the rally is in immediate danger of a major decline. This is a rally built on psychology, not fundamentals and the market is likely to power higher with brief corrections until there is a meaningful shift in psychology.

Given an upside probability of 7.5% in the S&P 500 to 5679, there are huge downside risks in the market including concentration, valuations, breadth, and significant divergences. Ultimately, there will be a major reversal in passive fund flows which brings a major decline (possibly accompanied by Fed intervention); however that risk does not appear to be immediate.

Overall, for investors with a multi-year horizon, chasing the mega cap indexes offers downside risks which far outweigh the possible upside returns. The most favorable opportunities appear to lie outside the US.

The meteoric rise in the SPX led me to spend a good bit of time on my bear market (20%+ decline) charts beginning with 1929. Every bear market chart includes notes regarding the structure of daily and weekly price action leading into the decline. I also maintain a long term historical chart of the SPX with four long term trend lines which have contained major and minor tops and bottoms. While updating these charts, I noticed that the SPX is approaching a major long term trendline drawn across the 1929 and 2000 tops. The 2021 high was close to that trendline. Trendline values change with time; however it has close confluence for the next several months with my intermediate term price target on the SPX at 5679.


Thank you for reading.

Earl Adamy

Ready to subscribe to the TAAStrategies?

"I believe in my experience, methods, and approach strongly enough that if you aren't entirely happy within the first two months, I'll return the entire Subscription Fee."

Prefer to learn more about the TAAStrategies?

Exceptional results are due entirely to the complementary strengths of our Market Conditions Model and our Tactical Model.