Chart Of The Week
One-Year Off The Low: A Muted Celebration
The bear-market low in the S&P 500 occurred one-year ago, yesterday. Whether that low remains intact during a potential recessionary down-leg is difficult to say, but the mere fact it’s survived for an entire year renders it significant.
Market Odds For The Second Half
With the halfway point of 2023 two weeks away, the S&P 500 has broken out to a 12-month high. The index has accomplished that feat 32 times during the month of June—or exactly one-third of all cases measured back to 1928.
What Is Narrower Than “Narrow”
The May Green Book, published a short three weeks ago, included an article titled “Market Narrowness in 2023” discussing the Big Tech theme’s market leadership this year. We noted that 77% of the S&P 500’s year-to-date return through April 30th was produced by the nine S&P 500 members of the NYSE FANG+® Index, itself a collection of just ten large companies that dominate the Social/Cloud/Innovators cohort. (As for which FANG+ company is not also in the S&P 500, that is your puzzle challenge for this long weekend.)
Checking In On The Rally At The Six-Month Point
Yesterday was the six-month anniversary of the bear market low of 3,577.03 in the S&P 500. We think it’s unlikely the moderate upswing since then represents a new cyclical bull market. However, with the evidence still weighing in at Neutral, we’re not betting the farm on that opinion.
What Does The Dow Have To Say About A “New Bull?”
Yesterday the NASDAQ 100 closed up more than 20% from its late-December low, prompting the media to enthuse that it had entered a “new bull market!” Sadly, though, the “NDX” has no company among the broad indexes: During this NASDAQ move, gains in the S&P 500 and Russell 2000 have been just 6.5% and 2.9%, respectively, while the DJIA is down 0.5%. (So much for January’s “breadth thrust!”)
Small Caps: We’ve Seen This Setup B-Four
In mid-2020, we wrote that a new multi-year leadership cycle had probably begun. Technically, that belief hasn’t been disproven, but the extent of outperformance has been disappointing in the nearly three years since.
The Job Market Just Rescinded A Recession Signal
For those disappointed that February’s employment report won’t be released until March 10th, we have something to consider in the meantime.
Fair Winds For Active Managers
The defining characteristic of last year’s bear market was the collapsing valuations of speculative growth stocks. A mania for themes such as cloud computing and disruptive innovation during 2016-2021 drove those names to fantastical valuations and bestowed market capitalizations of tens- and even hundreds of billions of dollars on such companies, many of which had yet to turn a profit.
Is This Year’s Strong Start “Signal Or Noise?”
This year is off to a much stronger start than suggested by the 3-4% gains in the blue-chip averages: Through January 12th, the Value Line Arithmetic Composite—an equally-weighted index of about 1,700 stocks, was up 7.0%.
Confidence & Causality
It will be years before policymakers know the long-term effects of the COVID experiment with Modern Monetary Theory. However, the episode has helped answer, once and for all, a question that’s troubled psychologists forever: Money can buy happiness! But it can’t buy hope.
Jay Powell, The Chartist
When Jerome Powell took the reins of the Federal Reserve in early 2018, many commentators cheered the fact that he does not possess a Ph.D. in Economics. It will be many, many years before historians are able to conclude whether that’s a good or bad thing.
Yesterday’s action, though, left us wondering whether Powell might stealthily be in the process of earning a different designation—that of Chartered Market Technician (CMT).
How This Year’s Inflation Peak Differs From Its Predecessors
Our studies of economic and stock market history are meant to provide perspective, not an investment roadmap. But occasionally a current trend will resemble the past so closely it’s eerie.
Take the current inflation cycle. If (as we believe) June’s CPI inflation rate of 9.1% represents the peak for this business cycle, then many of its characteristics have lined up almost perfectly with the “average” of past inflationary episodes.
Interrupting The Recession Debate With A Reminder Of How Hot The Economy Is
“Money illusion” continues to complicate analysis of the economy and financial markets. It might be a time when age and experience will actually prove helpful: Only investors who are 65 or older have experienced gaps between “nominal” and “real” data as wide as today’s.
Time To Retire The Fed Model?
We’ve heard no references lately to the famous “Fed Model” for stock market valuation. We think we know why: The model’s usual proponents probably don’t like its current verdict—which is that stocks are far more expensive than at the early January market peak.
Labor: Snatching Defeat From The Jaws Of Victory
This year it’s been popular to say the Fed will hike interest rates until it “breaks something.” Has that not already happened? Pull up charts of the Japanese yen, the British pound, and the euro, among others. And stateside, the Fed has broken one of economists’ favorite toys: the Phillips Curve.
When There’s No Slack, It’s A Bad Time To Slack Off
The scene in our neighborhood in the last two summers has become one of relaxed and well-tanned professionals out in their yards overseeing home improvement and landscaping projects. No surprise: Not a single one has told us they’re less productive when working from home!
Are You Better Off Than You Were Forty Years Ago?
Old timers will recognize our title as a twist on Ronald Reagan’s clincher in the final 1980 presidential debate with Jimmy Carter.
We recalled Reagan’s line while preparing for today’s 40th anniversary of the great 1982 secular stock-market low. Investors in the S&P 500 have earned an annualized total return of +12.4% since that trough, about two percentage points above the long-term average.
Margin Pressure Under The Surface?
The spectacular economic rebound from the pandemic lockdown lifted corporate earnings to heights that are almost hard to fathom. That stupendous earnings run has been fueled by rising profit margins, which also reached record highs after the pandemic.
How It Is, And Isn’t, Like Y2K
The 2022 economic backdrop is nothing like the near-Goldilocks environment accompanying the first few innings of the Y2K Tech bust. However, the action to-date in the former Growth stock leaders has followed the 2000-2002 path very closely—and almost on a point-for-point basis, when it comes to some indexes. With the stock market “weight of the evidence” still negative, we wouldn’t be surprised if the Y2K analog holds for a while longer.
If Inflation Has Peaked, Thank The Stock Market—Not The Fed
High inflation continues to dominate the headlines, but it is only one piece of the “weight of the evidence” that’s stacked against the stock market. Still, in ironic fashion, stock-market action itself suggests that inflation is set to peak.