Daily Stock Market Articles

IPO Activity Slow to Recover
Thu, Mar 21, 2024

The talk of the day is the debut of Reddit (RDDT) on public markets. The stock priced at the top of its expected range, and at the intraday highs traded 70% above the IPO price of $34. While Reddit's debut places some attention on new companies, overall IPO activity remains muted. In the chart below, we show the average monthly IPO issuance on a rolling 12-month basis in terms of both the number of companies and the $-value of those stocks. Following record issuance in the first couple of years of the pandemic, IPO activity has cratered to some of the lowest levels since the Financial Crisis. While there has been some recovery in IPO activity and Reddit (RDDT) puts IPOs back into the spotlight, there is still plenty of room to recover to levels observed over the past decade.



While not a perfect measure of recent IPOs, the Renaissance IPO ETF (IPO) seeks to track the space. Even though IPO activity has been weak, the ETF has been trending higher over the past year. With the most popular IPO in some time happening today, the IPO ETF has risen to 52-week highs right off extreme overbought levels.

 

Best Six Months Ends in April

After 5 months of solid gains, are markets ready for a pause?
Bullish Presidential Cycle Sitting President Pattern flattens out the mid-February to late-March seasonal retreat considerably without 2020 in the average.
April is the final month of the “Best Six Months” for DJIA and the S&P 500. From our Seasonal MACD Buy Signal on October 9, 2023, through (March 21, 2024), DJIA is up 18.4% and S&P 500 is up 20.9%. Fueled by interest rate cut expectations and AI speculation, these gains are approximately double the historical average already and could continue to increase before the “Best Months” come to an end.

This AI-fueled bull market has enjoyed solid gains since last October and will likely continue to push higher in the near-term, but momentum does appear to be waning with the pace of gains slowing. With April and the end of DJIA’s and S&P 500’s “Best Six Months” quickly approaching we are going to begin shifting to a more cautious stance. We maintain our bullish stance for 2024, but that does not preclude the possibility of some weakness during spring and summer.

 

Why High Interest Rates Haven’t Hurt the Consumer and Maybe Even Helped


“To see what is in front of one’s nose is a constant struggle.” -George Orwell

What I’m about to say might not go over well, but I’m going to do it anyways. Would you believe that in some ways higher interest rates have actually helped consumers? I get it. Half of you are furious with me for saying this, but hear me out first.

Here’s the chart that set X on fire recently. As interest rates have soared, so too have payments on debt. The big worry is eventually this will crush the consumer. I can admit I saw this first hand this year, as my daughter turned 16 and became a driver, and the rate for a car loan was substatially higher than when I got a car two years prior. Higher rates are real and when you use debt, they are adding to the pain.



Let’s look at that chart above one more time. We know that many mortgages are locked in at sub 3.5% rates and that is why interest on mortgages hasn’t spiked nearly as much as non-mortgage interest payments (think credit cards and car loans). Still, we know consumers are paying more for things if they are using debt. How can this possibly be a good thing?

I already wrote about why consumers appear to be in their best shape in decades here, so read this one when you get a chance if you haven’t yet (think wealth increasing more than debt). But now I want to take the other side of higher rates and that is savers are finally being rewarded.

It is estimated there is more than $6 trillion in money markets currently and most of those accounts are earning close to 5%. That right there is a plus side to higher rates. Yes, no one likes all the debt we have and no one likes seeing interest rates on credit cards soaring, but the flipside is that those who have cash are being rewarded like no time over the past few decades. I can’t tell you how many times I was told over the past 15 years how savers are getting nothing on cash. Well, that isn’t the case now.



Looking more closely, interest payments surged from $241.5 billion in December 2020 to the current level of $573.4 billion, for an increase of nearly $332 billion! Given the jump in rates from 0% to above 5%, higher payments make sense and no doubt would likely hurt consumers, as they are now paying more for things any time they borrow .

But while higher rates might mean higher borrowing costs, it also means higher rates of return for savers. For some reason, we don’t hear nearly as much about this positive development . Our team was hated last year for saying stocks would do well and the economy was going to avoid a recession. One of the main reasons we saw light at the end of the tunnel was we believed the consumer was quite healthy and would be able to weather the higher rates. That has happened. But another major plus (and honestly, not one we focused on) has been those same higher rates have helped savers.

Now let’s look at personal interest income. This was $1.5 trillion in December 2020, but was up to $1.83 trillion last month, for a jump in personal interest income of $330 billion. In other words, interest payments were virtually offset by the jump in interest income!



We are aware this isn’t an ideal backdrop for everyone, as many are struggling. But the truth is if you’ve owed stocks and a house the past decade or more, are college educated, and willing to work hard, then your net wealth is likely near all-time highs and these are the people who likely move the needle on the economy. My friend Ben Carlson wrote a great blog recently discussing many of these concepts and I agree with nearly everything he said. I especially liked this chart that showed household assets have grown more than household liabilities since 2020, pushing back against the narrative that we are drowning in debt.

 

5-Month Streak Looks Like A Secular Bull Market

Not only is it bullish for April and the rest of the year. When November, December, January, February and March are up stocks have been in a secular bull market that extended to at least the next year.

Note a touch of weakness in Q2-Q3 in the Worst Six Months and some huge Q4 rallies. Last 9 months of the year up all 11 times, average gain 11.9%,

 

Market Historically Strong Ahead of Good Friday

Good Friday is the one NYSE holiday with a clear positive bias before and negativity the day after (Stock Trader’s Almanac 2024, page 100). DJIA, S&P 500, NASDAQ, and Russell 2000 all have solid average gains on the three days and full week (shortened) before Good Friday. NASDAQ has been notably strong, up 21 of the last 23 days before Good Friday with an average gain of 0.79%. NASDAQ declines occurred in 2017 (–0.53%) and 2022 (–2.14%).

However, the day after Easter has a weak longer-term post-holiday record. The S&P 500 was down 16 of 20 years from 1984-2003 on the day after Easter while it has been up 13 of the last 20 years. Post-Easter weakness has been generally short-lived with solid average gains 2- and 3-days after.

 

Why a Strong Start to 2024 Is Bullish for the Rest of the Year


“Just a little bit more.” -John D. Rockefeller, founder of the Standard Oil Company and one of the richest men ever, when asked about how much money it takes to make one happy.

On the heels of about a 25% gain for the S&P 500 last year, stocks are up about 10% already in 2024. The logical question is, how much is too much? Well, like Rockefeller said long ago, maybe just a little bit more could be in store for the bulls.

For starters, the S&P 500 is up 17 of the past 21 weeks and up 27% over that timeframe. Never in history has that happened before, so we hope you’ve enjoyed this incredible run—it might not happen again for a very long time. The good news? More gains could be coming. We found six other times stocks gained at least 25% in 21 weeks and sure enough, stocks were higher a year later each time with an average return of more than 21%.



Stocks are about to gain each of the first three months of the year and we found that the rest of the year (so final nine months) were higher an incredible 19 out of 20 times after previous instances! Adding to the fun, April and Q2 tended to do even better as well.



Let’s not forget stocks soared in November and December as well, so they are up five months in a row heading into the usually bullish month of April. Sure enough, stocks tended to do better in April and Q2 after such long win streaks. Lastly, the rest of the year (so the final nine months) have never been lower when there has been at least a five-month win streak heading into April.



What about when Q1 gained 10% or more? Take note, 2024 isn’t there yet, but it is close with a couple of days to go. April and Q2 aren’t anything extra special, but the rest of the year was higher 10 out of 11 times, with only 1987 lower. 1987 was also up a record 20.5%, so that is a little different than the ballpark 10% in 2024. The average took a big hit those final nine months due to 1987, but the median was a rather solid 8.2%.



Looking more closely at the above, what got my attention was only 1976 and 2012 were election years and the returns the rest of those years were only 4.6% and 1.3%, respectively.

Lastly, we’ve seen very broad-based participation in this rally. Many large institutional research shops continue to (incorrectly, in my opinion) claim that only a few stocks are going higher and pulling the market along. I believe this isn’t true and really, never was.

We’ve been pushing back against this narrative for a year now. I specifically remember in May of 2023 being on TV and the other guest said something to the tune of, ‘…only seven stocks are going up, the overall market will crack the rest of this year due to this.’ On air I quickly noted how various advance/decline lines were making new highs and it simply wasn’t true. We apparently disagreed then and we disagree now. ‍♂️

Looking at last week, on Thursday we saw a huge surge in S&P 500 stocks hitting new 52-week highs. In fact, 118 hit a new high, the most in three years! I found 13 other times we saw an initial surge in new highs like that and wouldn’t you know, the S&P 500 has been higher a year out 13 of 13 times (not very unlucky if you ask me) for an average return of 12.0%.



That’s enough for now. We’ve been overweight equities since December 2022 and we’ve also been in the camp the economy would avoid a recession that whole time. We remain there and many of these studies do little to change my optimistic outlook.

Many people are on Spring Break this week and next, so if you are taking some time off, have fun! ☀

 

Good Friday Boosts End Q1 But Weakens Q2 Start

Over the past 34 years since 1990 the last trading day of Q1 has been plagued by end-of-quarter portfolio restructuring. DJIA is down 21 of 34 with an average loss of –0.24%. S&P is down 19 of 34 with an average loss of –0.04%. NASDAQ is up 20 of 34 with an average gain of 0.21%. Russell 2000 is up 25 of 34 with an average gain of 0.32%.

When the day before the Good Friday market holiday is the last trading day of Q1 it’s a boost. DJIA is up 7 of 10, average 0.18%. S&P is up 7 of 10, average 0.29%. NASDAQ is up 6 of 8, average 0.51%. Russell 2000 is up 6 of 7, average 0.47%.

First trading day of April/Q2 has a more positive history. Since 1990, DJIA is up 23 of 34 with an average gain of 0.21%. S&P is up 22 of 34 with an average gain of 0.13%. NASDAQ is up 18 of 34 with an average loss of –0.21%. Russell 2000 is up 17 of 34 with an average loss of –0.24%.

Easter Sunday the day before the first trading day of April/Q1 has the reverse effect, it’s bad. DJIA is down 7 of 10, average –0.44%. S&P is down 6 of 10, average –0.48%. NASDAQ is down 7 of 8, average –0.84%. Russell 2000 is down 7 of 7, average –1.12%.

 

All or Nothing Comes Back
Thu, Mar 28, 2024

Although the S&P 500 is ending the week little changed (as of this writing it is trading 7 bps higher today), yesterday's gain came in at a more impressive 86 bps. Besides the size of the move higher was that the gain occurred on very strong breadth with the S&P 500 registering an "All or Nothing Day". We consider any day an "All or Nothing Day" when the daily advance/decline line (the difference between the number of S&P 500 stocks rising and falling on a given day) comes in at above +400 or below -400. In other words, these are days when broad swathes of the market trade in the same direction.

Recently, all-or-nothing days have been hard to come by. On a rolling 200-day basis, only 4.5% of days have registered such readings. Following very elevated readings just one year ago, current levels are now down around some of the lowest of the past two decades.



For this calendar year, yesterday was also the first all-or-nothing day of the year. Since 2008, when the pace of all-or-nothing days experienced a structural increase in frequency as the popularity of ETFs ballooned, the only other year where the first occurrence came later in the year was 2017 when it took 72 trading days.



Not only have "All or Nothing Days" been fairly uncommon lately, but before yesterday it had been just over three months since the last one was observed. As shown below, that is one of the longer streaks of the past couple of decades. The last streak of such a length ended in late January 2020. Of course, there have been multiple streaks that have run much longer such as 2006 and 2018 which were nearly twice as long. Or going further back to the 1990s (not pictured in the chart below), there have been streaks that have gone on upwards of 561 trading days.



In the table below, we show the performance of the S&P 500 following the end of each other streak without an all-or-nothing day since 1990 that has lasted at least three months. This most recent streak just barely made that three-month mark, but following prior streaks performance was mixed. After these streaks have ended, the S&P 500 has traded higher only a little better than half the time one week, one month, and three months later. Additionally, median returns were weaker than the norm for all periods since 1990. Six months to a year later, the S&P 500 traded higher much more consistently, albeit again median returns have trailed the norm.

 

Here Comes the Usually Bullish Month of April


“April is a moment of joy for those who have survived the winter.” –English writer Samuel Johnson

The bull market continues and with one day to go in the first quarter, it is looking like more gains for stocks this month. The S&P 500 will also be up a very impressive five months in a row.

As we turn the calendar, we are now staring at the usually bullish month of April.

Here’s the high level thing to know. The S&P 500 in April has averaged 1.5%, the second best month of the year (only November is better). It is also the third best month the past 10 years and it is the fourth best month the past 20 years and in an election year.



Be aware that a lot of the gains in April historically take place the first part of the month.

As long-time followers know, we’ve been quite bullish on both the stock market and the economy for well over a year now. Could stocks fall in April? Sure, after the run we’ve had anything is possible, but the odds do favor more green numbers.

As we mentioned in Why a Strong Start to 2024 Is Bullish for the Rest of the Year, a big start to a year tends to see continued gains the final nine months. What is interesting is in many cases, a big start to a year means April will outperform as well.

For example, when stocks are up the first three months of the year, April is up 1.8% on average, better than the average April gain of 1.5%.



When the S&P 500 gained 10% during the first quarter (which might happen with a late rally this week) then April didn’t do quite as well, up 1.1% on average, but still higher at least and a pretty good number if you annualize it.



Turning the page from April, in the quote above from Samuel Johnson winters are portrayed as usually rough, but it has been a pure delight for investors this winter, as the S&P 500 is up five months in a row. We found the past 28 times the S&P 500 had a 5 month win streak it saw higher prices 12 months later 26 times, with above-average returns to boot.



We want to wish everyone a happy Easter holiday and if you have Spring Break this week or next week, remember to wear sunscreen!

 

Q1 2024 Asset Class Performance + Big Winners and Losers
Thu, Mar 28, 2024

The first quarter of 2024 ended with the S&P 500 (SPY) posting a total return of 10.4%. That was good enough to beat the Tech-heavy Nasdaq 100 (QQQ) and the blue-chip Dow 30 (DIA) on the large-cap front, and it also beat both mid-caps (IJH) and small-caps (IWM). The weakest of the various US index ETFs in Q1 was the small-cap value ETF (IJS), which was up just 0.06%.

Looking at sectors, it was Energy (XLE), Financials (XLF), Communication Services (XLC), and Industrials (XLI) that posted double-digit percentage gains, while Real Estate (XLRE) was the only sector in the red with a decline of 0.65%.

Outside of the US, there were some winners like Italy (EWI) and Japan (EWJ) and losers like Brazil (EWZ), Hong Kong (EWH), and China (MCHI).

Commodity ETFs saw some big gains in Q1, although natural gas (UNG) fell sharply. While Treasury ETFs were up slightly in March, they finished Q1 slightly in the red.



Below is a look at the average performance of Russell 1,000 stocks in Q1 broken out by sector. As shown, Energy stocks averaged the biggest gains in Q1 at 11.56%, followed by Industrials (10.08%) and Financials (9.61%). Notably, Tech stocks averaged a gain of just 4.86%, while Communication Services and Real Estate stocks averaged declines.



Below is a look at the 30 best performing Russell 1,000 stocks in Q1. NVIDIA (NVDA) topped the list with an 82.5% gain, but surprisingly, a Utilities stock (VST) ranked second with a gain of 80.8%. AppLovin (APP), Shockwave Medical (SWAV), and Vertiv (VRT) rounded out the top five.

When we crossed the list of big Q1 winners with our Bespoke AI basket, it's interesting that just three of the top thirty stocks are on our AI list: NVDA, VRT, and PSTG. There were plenty of non-AI and non-Tech stocks up big in Q1, like Williams-Sonoma (WSM), Crocs (CROX), Kellogg (KLG), Spotify (SPOT), and DoorDash (DASH).



Not everything went up in Q1. Roughly a third of the Russell 1,000 finished the quarter in the red, while there were 49 stocks in the index that fell more than 20%. Below are the 30 stocks that did the worst in Q1, led by New York Community Bancorp's (NYCB) decline of 68.5%.

 

Equities Shine Over Bonds
Mon, Apr 1, 2024

Helped mainly by the massive gain since late October, the S&P 500’s one-year trailing total return through the end of March clocked in at an eye-watering 30.5%, or nearly triple the historical average of 11.8%. While the rally over the last year has been well above average, it followed a period of weak returns in the prior year. When you combine the last two years, the S&P 500’s annualized gain of 9.7% is nearly a full percentage point below the long-term historical average. Looking out over the last five and ten years, annualized returns have been well above average, but over the prior twenty years, the S&P 500's performance has been sub-par.



Equity market returns may have been below average over the last two and twenty years, but you won't find many equity investors looking to trade shoes with investors hiding out in long-term (LT) US Treasuries. The chart below shows the annualized total return of the Bank of America/Merrill Lynch index of 10+ Year US Treasuries over various timeframes. Over the last year, LT Treasuries declined 4.8% versus a long-term average annualized gain of 8.1%. If you think that’s bad, check out the two-year annualized decline of 13.1%...in Treasuries! That’s a 25% haircut! Even over the last five years, LT Treasury returns have been negative to the tune of 1.6% annualized. To find – not better than average – but simply positive returns, you have to go out to the ten-year window, where the total return is just 1.6% annualized and still seven percentage points less than the historical average. While technically not a lost decade, it's been a loser of a decade for sure.

 

Streaks of the S&P 500
Tue, Apr 2, 2024

In last Thursday's Closer, we spotlighted how the S&P 500 has consistently traded at overbought levels this year. Through early afternoon on Tuesday, the S&P 500 was on pace for its 52nd straight trading day of closing at least a full standard deviation above its 50-DMA which ranks as the longest streak since April 1998 (60 trading days).



Not only has the S&P 500 been extended versus its 50-DMA, but it has also traded overbought relative to its 200-DMA. Through early afternoon Tuesday (4/2), the index was also on pace for its 95th straight day of closing more than a standard deviation above its 200-DMA. Interestingly, compared to the 50-DMA streak the current streak of overbought closes versus the 200-DMA stands out much less. Since 1928, there have been 34 streaks of at least 95 days with three of the longest lasting for over a year (1955, 1959, and 1996).



That is not to say the current run of longer-term overbought readings is unremarkable. For much of that current streak, the S&P 500 has been extremely overbought (at least 2 standard deviations above its 200-DMA). Yesterday's close marked the 41st day in a row with a 200-DMA extreme overbought reading. That is the longest such streak since early 2018, and before that, there were only eight other similarly long or longer runs. That being said, the S&P 500 decline of more than 1% in early afternoon trading today puts the index on pace to close 1.9 standard deviations above its 200-DMA, ending the current streak.



The S&P 500 being consistently overbought is not the only notable current streak. As shown below, we are also nearing 100 days in a row in which the S&P 500 has been higher month-over-month (21-trading day rate of change). At 97 trading days, this streak of month-over-month gains ranks as the ninth longest on record after surpassing a 96 trading day streak that ended on September 5th, 1980.

 

Three Things That Just Happened That Are Great News for Bulls


“We may not know where we are going, but we better know where we stand.” –Howard Marks, Co-Founder of Oaktree Capital Management

Following the huge 11.2% rally for the S&P 500 in the fourth quarter of last year, the index has given us an encore performance in the first quarter with a 10.2% gain. Big gains like this in Q1 aren’t very common. Only 11 times has the S&P 500 gained more than 10% in the first quarter. But the good news is what happened next tended to be good for s.

April gained 1.1% on average following those 11 big first quarters, not quite the average 1.5% gain, but not a bad number by any means. Looking at Q2 the returns get a tad better, and the rest of the year has been higher 10 out of 11 times with a solid 8.2% median return. Yes, the one time things didn’t work out was in 1987, but note that stocks were up 40% for the year in August back then, so that was a much more stretched rubber band than now. The bottom line, a big Q1 could be a clue the bull market is alive and well.



If a 10% Q1 was rare, let’s now talk about back-to-back double digit quarters. We are looking at only the eighth time that has ever happened and the first time since Q1 2012 (also an election year). The one and two quarter returns aren’t much to get excited about (but after a huge move, some type of consolidation is perfectly normal), but a year later stocks were higher six out of seven times and up 12.1% on average. Again, this is likely a positive sign of continued strength from stocks.



Last and certainly not least, here’s one of my favorite indicators. This is called the December Low Indicator and it is fairly straightforward. When the S&P 500 doesn’t close beneath the December low close in the first quarter, good things have tended to happen the rest of the year. The opposite, of course, is when the December lows are violated in the first quarter. To refresh your memory, last year they didn’t break the December low and it was a great year, while a break in early 2022 was one subtle clue that the odds were elevated that the rest of the year could be dicey. Given that stocks didn’t break their December low this year, this is one less worry for sure.

Interestingly, since 1950, stocks held above the December lows 37 times while they broke the lows 37 times. Talk about even-steven. Those are some pretty big sample sizes, and sure enough, the results are quite conclusive.

Those 37 times the December lows held? The full year was up an incredible 35 times and up an average of 18.8%. The times it failed? The full year was down 0.2% on average and higher less than a coin flip.



If you want to investigate things more closely, here are all 37 times the S&P 500 held above the December lows. I added what happened the rest of the year (so the next three quarters) as well, and once again, strong performance was quite normal. We get it, anything could happen from here. But the truth is it would be abnormal to see a massive bear market and horrible year for stocks this year.



Here’s the other side to things. What happened when the December low was violated? Once again, the full year and the next three quarters’ returns were much weaker. Just a quick glance and some of the worst years ever saw the December lows broken. Years like ’73, ’74, the tech bubble, ’08, and ’22 all made this infamous list.



Odds are, as you read this, I will be somewhere in wine country out in California (probably Calistoga). You caught me. I wrote this one a few days early, so I’m not overly concerned given this potentially bullish development. I’m more into enjoying a very laid-back part of the country and some of the best food from the best chefs in the world. But starting next week I’ll be focusing on all of this more closely. Or, as Howard Marks said in the quote above, we don’t know where we are going, but we do know we stand on potentially a better backdrop for stocks than most think.