Investing Update: Fuel To Move Market Higher
Investing Update: Fuel To Move Market Higher
What I'm buying, selling & watching
The S&P 500 just finished up for the 6th consecutive week. That’s the longest streak since November 2019. It’s also a new 52-week high and the highest level since March 2022.
The Nasdaq followed with its highest level since April 2022.
This comes as a bit of a surprise as the Magnificent 7 stocks that have led the market for so long have experienced some selling pressure.
According to data from Goldman Sachs, hedge funds have started to sell the Mag 7. “Hedge funds have sold the Magnificent 7 collectively in 15 of the past 17 sessions as of 12/4.”
But here come the rest to pickup the slack. Bespoke shows the 80 stocks in the S&P 500 which accounts for 16% of the index that made new 52-week highs.
This is a bullish sign as more stocks outside just the Mag 7 are making new highs. The other 493 stocks in the S&P 500 have a lot of ground to make up and could help push this rally higher to new all-time highs.
With the S&P 500 within 5% of its all-time highs, only 24% of the stocks are within 10% of their all-time highs per BofA. That’s much lower than the 28% historic average and significantly lower than previous bull market peaks. A clear indication to me that we’re not near any peak and there could be significant upside ahead.
Signs of Easing Interest Rates?
One of the bigger questions facing investors is when is the Fed going to cut interest rates? I don’t think it’s a question of if, it’s a matter of when. I’ve been looking at a couple charts that might be signaling that a rate cut is nearing.
With November being a blowout month for the stock market, would you have guessed that the top performing sector was actually US REITs? I sure didn’t.
This week then saw homebuilders hit a new all-time high.
This type of action does not tell me that rates are going to continue to remain at these levels. Clearly investors are betting that a rate cut is coming. If that happens and interest rates fall, I expect housing to take off yet again. Positioning within REITs and housing stocks show I’m not the only one with that view.
Bearish Signals Forming?
For all the bullishness we are seeing, there are still some underlying trends that are providing some warnings signs. If you only want to look for bullish data you can find it. If you only want to look for bearish data you can find it.
I do my best to try and gauge the data and sentiments from both sides. No side is ever always right and that’s why you always have to have your eyes open to what’s changing and follow trends and data. I think this helps you be a better investor.
The first thing that’s starting to climb is the number of business bankruptcy filings. In fact, the jump in the number of companies has now passed any number during or after the pandemic. It’s actually back to 2010 levels. This is not a positive sign in any way you try to slice it.
We’re also seeing a rapid decline in bank lending. Now this is clearly a reaction to the Fed raising interest rates. But this isn’t something that can continue and throughout history rapid declines normally don’t last long. It really can’t. It isn’t good for businesses and the economy as it slows business expansion and hiring. It plays into the reason why rate cuts are expected sooner rather than later.
Lastly are the trends that are being seen in the slowdown in restaurant demand. This is normally a very good read into the consumer and the amount of discretionary income spent on eating out. Steep falls in this index has usually signaled more problems ahead.
Fuel To Move Market Higher
Friday of this week brought two very important data reads in my opinion.
The first was what the consumer sentiment number came in at. The reading had been at 61.3 with an estimate of 62. The number came in at 69.4. That jump is the highest level since July. A trend that had shown consumer sentiment falling fast, turned and flipped to one of the best numbers in a year.
Here is a zoomed out look at the consumer sentiment index.
I found this chart to be interesting as they took the consumer sentiment index and broke it down by political party.
What political beliefs can’t affect is what the unemployment rate showed as well on Friday. The unemployment rate dropped to 3.7%. That’s the lowest number in 4 months. This now makes 22 straight months that the unemployment rate has been under 4%. Everyone wants to work!
The unemployment rate has been brought down by the participation rate. The prime age (25 to 54) labor force participation rate is right near all time highs at 83.30%.
A surprise in the Friday jobs report came from the labor force participation for women. Women ages 25 to 54 has hit an all-time record high. The big stories written over the past few years was how so many women were forced out of the work force. Now they’ve found their way back.
Wage growth is sitting at 4%. With inflation now at 3.2%, wages are now growing faster than the rate of inflation.
This brings me to the best chart of the week on the indicators used to determine whether the economy is in recession. You can see for yourself just how good the economy is doing from multiple indicators.
For those that keep calling for a recession. Yes eventually a recession may hit the economy. But right now there is no recession and is not one in sight. There is nothing in the data indicating that one is coming in the near future. This environment still remains very bullish for stocks.
Moves I’ve Made
S&P 500 Index I added to my S&P 500 index holding on Thursday of this week.
Alphabet This week I added to my position in Alphabet at $135 a share. I started buying it at $139 in 2021. (Investing Update: Why I’m Buying Google) I added more when it was all the way down at $95 (Investing Update: Investor Cash Levels Rise) and again at $83.93. (Investing Update: I Went On a Buying Spree)
This is still the cheapest of the Magnificent 7 from a valuation perspective and I think it remains undervalued. Alphabet was said to be way behind in the AI race. This week that view took a big turn. Gemini is their AI model and this week the CEO shared a look into where they are in the AI arms race. I was blown away with how impressive it looked in action. This increased my conviction in the future of Alphabet and it was a reason I bought more in this still undervalued name.
Here is a link to the video that was posted on X by Alphabet CEO Sundar Pichai.
The Coffee Table ☕
Ryan Detrick made a great post called Things You Don’t See in A Recession. He goes one by one on all the things that we don’t see in a recession. It really puts into context with data and charts where things are currently at. Whether you agree or disagree if a recession is coming, or if we’re already in one, this is worth reading.
Barry Ritholtz wrote a very good piece on market timing, The “Art” of Market Timing. Instincts, low stakes and luck are a perfect way to frame this. Then I couldn’t agree more with Barry in how he ends it with the following. It’s something every new or young investor should read.
“If you want to have a small percentage of your portfolio in a cowboy account where you can swing in and out without affecting your real money, sure, why not!
But with your core portfolio — the capital that really matters — the best thing you can do is leave it alone to compound over time…”
The day before Thanksgiving I was lucky to come across this bottle of Blanton’s Straight From The Barrel at a local spot. It was the biggest find I’ve ever had as this is very rare and hard to find. We opened it on Thanksgiving as we hosted our family. It’s 132 proof so it has a bit of fire to it. The first sip is powerful and loaded with flavors. As you get acclimated there is bold cherries, brown sugar, molasses and french vanilla. It’s a bourbon you could slowly sip all night. It finishes so perfectly. One of the better bourbons I have ever had. If you ever see a bottle of this, be sure you treat yourself to it. It really is that good.
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