Diversify, the US Stock Market remains risk off

By Jeffrey Cohen, Investment Advisor in Highland Park, Illinois

A risk-off market means that a US stock market investor has to work harder to find an edge, or alpha, right now. The investor needs to hold more stocks, and put less money into each one.

Last night’s optimal ‘long’ or ‘up’ portfolio contained 65 stocks held evenly, including many large and Blue Chip stocks included. The edge over holding $SPY (the S&P 500 Equity Index ETF) was 7.1 x 10–5, which is relatively small.

Here is the list of stocks we chose last night: [‘AAPL’, ‘AB’, ‘ABBV’, ‘ADBE’, ‘ADP’, ‘AFCG’, ‘AFG’, ‘AGNC’, ‘AMBP’, ‘AMZN’, ‘AON’, ‘ARC’, ‘ARI’, ‘AVGO’, ‘BKE’, ‘CDNS’, ‘CFFN’, ‘CM’, ‘CME’, ‘COST’, ‘CSCO’, ‘CWH’, ‘DG’, ‘DGX’, ‘EIX’, ‘F’, ‘FTAI’, ‘GOOG’, ‘GOOGL’, ‘INTC’, ‘INTU’, ‘JNJ’, ‘JPM’, ‘KNTK’, ‘KO’, ‘LLY’, ‘LMT’, ‘MC’, ‘META’, ‘MRK’, ‘MSFT’, ‘NATI’, ‘NFE’, ‘OMF’, ‘OTEX’, ‘PCAR’, ‘PEP’, ‘PFE’, ‘PKE’, ‘PSA’, ‘QCOM’, ‘QSR’, ‘RBA’, ‘RGR’, ‘RILY’, ‘ROK’, ‘STLA’, ‘TROW’, ‘TSLA’, ‘TXN’, ‘UNH’, ‘UPS’, ‘USAC’, ‘UWMC’, ‘WBA’].

Another risk-off sign is the smaller number of individual stocks that have a better Chicago Quantum Net Score than holding all 3,402 US-listed common stocks. There are only two, PNM or PNM Resources Inc. and BRK.B or Berkshire Hathaway Inc. In a bull market, we find this list full of risky names that are moving higher or lower, but in a smooth pattern. These two stocks do slightly better individually than the $SPY, based on historic risk and expected returns.