As we do at the start of each week, in Monday’s Closer we recapped the latest positioning data from the CFTC’s Commitments of Traders report.  In essence, this data highlights whether traders are in aggregate positioned long or short in various futures contracts.  In the charts below, we show the historical net percentage of open interest net long (short) for gold and silver futures.  Higher positive readings indicate that positioning is net long (more longs than shorts), while negative readings indicate that positioning is net short (more shorts than longs).

Last week’s data saw a number of big moves in commodity futures, but some of the most notable were in the precious metal space.  For starters, silver rose to 41.5% net long. That makes for the most optimistic positioning since April 2017. As gold continues to trade at record highs, traders have gotten extremely long at 57.7%, which is a record high in this series dating back to 1986!

As shown above, last week’s record high in gold positioning isn’t the first of the year.  So far in 2024, there have been five weeks with record highs.  As shown below, that is the largest number of record highs since 2009 when there were six.

Again, the new high in gold positioning comes as gold itself is trading at record highs. In the chart below, we show the price of gold during the history of the Commitments of Traders data and plot each time that positioning was also at a record high.  Of these occurrences since 2000, gold has usually been trending higher when gold long positioning reaches a record.  That was also the case in the 1980s, albeit that was early on in the CFTC data’s history, and as such, back then the net long readings were significantly lower than they are now.  The 1990s were a bit different as the strong reads on positioning came at a time when gold was sitting in a downtrend.

The conventional wisdom in investing suggests that individuals should reduce their exposure to equities as they age. This strategy is based on the principle that younger investors have a longer time horizon and can afford to take on more risk, while older investors, nearing or in retirement, should focus on preserving capital and minimizing risk. However, the chart below depicting equity and mutual fund shares as a percentage of financial assets by age group reveals a notable deviation from this traditional approach. Surprisingly, it is the oldest cohort of investors—those aged 70 and above—that maintain the highest levels of equity and mutual fund exposure, with the trend intensifying over time.  This data comes from the most recent quarterly Distributional Financial Accounts report from the Fed analyzing household wealth.

The discrepancy in equity market exposure for older and younger age groups can largely be attributed to the dramatic rise in the stock market over the past few decades, which has significantly boosted the wealth of older investors. However, it also underscores a broader trend: younger generations are notably underrepresented in equity markets. This is likely due to a combination of lower net worth, less savings, and perhaps even a more cautious approach to investing. Nevertheless, younger investors, with their longer investment horizon, should ideally have a higher proportion of their financial assets in equities to capitalize on potential long-term growth.  We would note, though, that the <40 age group now has a slightly higher share of equity market exposure than the 40-54 age band, and the reading for sub-40 investors has skyrocketed since COVID while the 40-54 age group has merely trended sideways over the last ten years.

In a similar vein, you might expect older investors to have more cash in the form of deposits and money market funds than younger age groups, but it’s the sub-40 group that currently has the highest percentage of cash at 20.2% of financial assets.  Back in the 90s, older investors carried much higher cash levels than younger investors, but that trend reversed in the years following the Financial Crisis.  The sub-40 group has held the highest cash levels of any age cohort for 12+ years now.  All things equal, we view it as bullish for the long-term health of the market that younger investors currently have lower equity exposure than most of their peer age groups and higher cash levels.  It suggests there’s plenty of money out there ready to “Get Invested!” at some point.

The charts above were featured in our Closer report sent to Bespoke Institutional subscribers on 9/23.  In addition to these two charts, we featured many more from the Fed’s latest quarterly report on household wealth that were quite interesting.  If you’d like to read the rest of The Closer from 9/23 and gain access to everything else Bespoke publishes for investors on a daily basis, sign up for a Bespoke Institutional trial today.

Before last week, when the S&P 500 last made a record high in July, breadth was incredibly narrow as only two sectors – Technology and Communication Services (driven mostly by ‘tech-like’ stocks) – had outperformed the S&P 500 on a YTD basis.  In the latest leg of the rally, breadth has broadened, and as of last Friday, the number of sectors outperforming the S&P 500 on the year has doubled from two to four.  While Technology and Communication Services remain on the outperformer list, Utilities and Financials have also joined.  Utilities is not only a new entry on the outperformer list but it has also moved to second overall, trailing only Technology (27.4% vs 25.6%).

The chart below compares the paths that Technology and Utilities have taken on a YTD basis along with the performance of the S&P 500. While the two sectors have similar returns, they have mostly achieved those gains at alternating points in the year. In the first two months of 2024, Technology came out of the gate strong while Utilities started the year with modest declines.  As March rolled around, Tech’s momentum stalled while Utilities picked up. In early summer, we saw a similar trend to the start of the year play out until early July when the two sectors’ roles started to reverse again.

The opposite paths of the two sectors stick out much more when we look at their relative strength versus the S&P 500 this year. For each sector, a rising line indicates outperformance versus the S&P 500 while a falling line indicates underperformance. For almost all of this year, the two series have been mirror images of each other. So even as they sit at number one and two in terms of YTD performance, their paths couldn’t have been much more different.  What makes the different paths even more notable is that, as last week’s deal between Microsoft (MSFT) and Constellation (CEG) illustrates, both sectors have been riding the same wave to the top of the sector leaderboard.

Welcome to Bespoke Brunch Reads — a linkfest of some of our favorite articles over the past week. The links are mostly market-related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

“You Got It, Dude!”:Full House premiered on September 22nd, 1987, and quickly became a beloved family sitcom. The show centers around Danny Tanner, a widowed father played by Bob Saget, raising his three daughters, D.J., Stephanie, and Michelle, in San Francisco. To help him manage, Danny’s brother-in-law, Jesse, played by John Stamos, and his best friend, Joey, move in, creating a truly “full house.” Everybody remembers the young Olsen twins, Mary-Kate and Ashley, who shared the role of Michelle. Full House ran for eight seasons, ending in 1995. Its family-oriented content made it a staple of 1990s television, and it gained a new generation of fans through reruns and streaming services, eventually leading to a sequel series, Fuller House, which debuted on Netflix in 2016.

AI & Technology

Omnipresent AI cameras will ensure good behavior, says Larry Ellison (Ars Technica)
Oracle co-founder Larry Ellison recently shared his vision for a future where AI powers widespread surveillance, using cameras, drones, and advanced systems to monitor citizens and police alike. He believes this constant oversight would improve behavior and make law enforcement more efficient, even predicting drones could replace police cars in high-speed chases. While Ellison sees the benefits, his ideas bring up big questions about privacy and civil liberties, with parallels to Orwell’s 1984. The challenge of securing enough hardware, like GPUs, remains a key obstacle for companies racing to implement these technologies. [Link]

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