Investing Update: Q4 Liftoff Coming?
Investing Update: Q4 Liftoff Coming?
What I'm buying, watching & selling
The stock market ended the week lower as bond yields continued to march higher and worries remain over the Israel-Hamas conflict spreading. S&P 500 was down 2.4% on the week and the Nasdaq down 3.2%.
We’ve now seen the S&P 500 fall 8% from the highs of the year. The Nasdaq has come down almost 10% from the highs. It’s a sizeable fall but they still remain up nicely on the year. The S&P 500 still remains up 10% and the Nasdaq up 24%.
Something to monitor as next week begins is that the S&P 500 closed below the 200-day moving average for the first time since March. It closed at 4,224 and it’s barely hanging onto 4,200. I feel that’s a very important level to watch.
On the week the S&P 500 posted no new 52-week highs and 38 new lows. The Nasdaq recorded nine new highs and 420 new lows.
Consumers Continue Spending
On Tuesday we got a retail sales number that blew it out of the water.
Retail sales 0.7% vs expected 0.3%
Retail sales (excluding autos) 0.6% vs expected 0.2%
It has become tiresome to hear how the consumer has no money and a recession is imminent. We’ve been told how the spending will stop. Well, it hasn’t. I loved Ryan Detrick take on this. “The strongest recession ever continues.”
In fact, retail sales have been up for six consecutive months now. That has not happened since early 2019.
The spending by age group actually shows that the 65 years and older crowd is leading the spend. I would not have guessed that. In fact, they accounted for 22% of spending last year. The seniors are spending and that may be the economy’s secret weapon.
One of the things I found interesting when going over retail sales was what has happened with the U.S. personal spending on boats. Obviously people love being on the water more than ever.
Magnificent 7 Hits Record
The Magnificent 7 share of the S&P 500 continues to climb. Now at almost 30% of the S&P 500 market cap, this is the highest level yet. That means when you buy the S&P 500, 30 cents of every dollar you put in goes into these 7 stocks. 70 cents goes to the remaining 493 stocks. I expect this percentage share of the Magnificent 7 to continue climbing even higher.
When we look at the performance of the Magnificent 7 YTD, we continue to see why money keeps flowing into these names. These are the best run companies in the world with pristine balance sheets, loads of cash and they just continue to deliver. I personally own 5 of the 7.
Q4 Liftoff Coming?
The BofA global fund managers survey shows that cash levels for fund managers is still quite high. It rose from 4.9% to 5.3%. This supports the chase or catch-up trade and appetite for risk as we enter year-end.
When you hear the talk about Q4 seasonality, here is what is being referred to. This chart shows the S&P 500 average performance in 4th quarters over the past 20 years. Over those 20 years it has average over 5% return in Q4.
The best three months from 1928 to now on the S&P 500 is the months November through January.
Small caps, which are bottom bouncing off their 52-week lows historically also take off seasonally in Q4.
If you zoom out even farther and look at the MSCI AC World Index you will also see Q4 outperformance. As Barchart highlights below.
October 12 marked the beginning of the best 10 weeks of the year for global stocks according to historical seasonality. On average, 67% of global equity returns occur during this period.
Next week 150 of the 500 S&P companies report earnings. Led by Microsoft, Alphabet, Amazon and Meta.
If earnings come in strong next week, especially from the four mega-cap tech stocks, the run into year-end should begin. You have fund manager with high levels of cash, Q4 historic seasonality trends in play, along with a possible catch-up trade from any managers who are lagging year-to-date. This sets up perfectly for a Q4 run right into the Santa Clause rally to end the year.
Moves I’ve Made
S&P 500 Index This week I added to my S&P 500 index holding.
What I’m Watching
As the market bounces around and searches for direction, I have my eye on two names. I already have a position in both of these but I’m interested in adding to them.
Lululemon After starting a position a few weeks back, I wish I would have bought even more. I talked about buying it my October 7th Investing Update: Is It Time To Buy?
After buying it at $368, it shot up this week to a new 52-week high of $419.86 on news that it is going to be added to the S&P 500. That’s a quick spike of 14.09%. There is a lot of strength forming here and if this gets sold off in a market-wide pullback you can bet I add more Lulu.
Tesla After reporting a blah earnings this week the stock has sold off hard. It has dipped below the 200-day moving average of $214.69 and if it falls under $200 I will be tempted. When you talk volatility and risk/reward Tesla is what comes to mind. The auto side continues to get the focus but I think long-term Elon and company are working on more technologies that will grow this company.
I continue to remain highly interested on where the robotics is going. At what point do we see more of the Optimus robot. Late last month Elon tweeted a look into where things are at with it. After watching this I only had one word to describe it, wow. You can click here to watch the video.
The Coffee Table ☕
Thomas Kopelman wrote an informative post on tax write-off myths. 14 Biggest Social Media Tax Myths (And Why They Are Wrong) There are a lot of the common tax write-off questions he covers which I learned from. Great timing as we come into year-end tax planning.
The
celebrated its second year last week. Congrats to my pal Sam Ro for taking the leap and absolutely crushing it. I enjoyed his piece last week on some things investors need to remember, SPECIAL EDITION: Telling the story of how the stock market usually goes up, year 2This week saw mortgage rates cross the 8% mark. That now puts U.S. mortgage rates at a 23-year high. Earlier this month I wrote Are 10% Mortgage Rates Coming? When I wrote the post there was no slowing in sight and that still remians the case. Double digits mortgage rates are moving towards a new reality.
If you’re a bourbon fan, this will be welcomed news to you. When I read this it made my day. Buffalo Trace which produces Pappy Van Winkle, E.H. Taylor, Blanton’s, Weller, Eagle Rare and many other favorite bourbons is now more than doubling its production capacity. It’s Official: Buffalo Trace Distillery Commissions New Still & Doubles Bourbon Whiskey Production Capacity
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