Daily Stock Market Articles

March: Historically Solid, but Plagued by Steep Losses in Election Years 1980 & 2020

As part of the Best Six/Eight Months featured in the 2024 Stock Trader’s Almanac, March has historically been a solid performing month with DJIA, S&P 500, NASDAQ, Russell 1000 & 2000 all advancing more than 64% of the time with average gains ranging from 0.7% by Russell 2000 to 1.1% by S&P 500.

March has a mixed track record in election years. Average performance is hammered lower by steep declines in 2020 and 1980. DJIA and S&P 500 have both advanced in 11 of the last 18 election-year Marchs, but the forementioned declines drag average performance to just 0.2% and 0.4% respectively. NASDAQ, Russell 1000 and Russell 2000 are hit even harder due to fewer years of data. Declines in 2020 were the result of the covid-19 pandemic while 1980’s losses can be attributed to surging inflation that peaked at 14.6%.

 

Inside Nvidia’s Earnings: Accelerating Demand for AI


“Forget self-driving cars, AI is transforming every industry, and Nvidia is at the center of it all” – Venture Capitalist, TechCrunch

With bated breath, investors eagerly awaited the final earnings report of the “magnificent 7.” Among the seven, Nvidia’s report was perhaps the most hotly anticipated, given it’s the driving force behind accelerated computing and artificial intelligence. This tech darling, responsible for significant market gains over the past year and a half, carried the weight of the entire AI industry on its shoulders. An earnings beat was expected, though how large of a beat left investors wringing their hands. In the days leading up to the report, shares of Nvidia had fallen about 8% as investors took profits. It turns out, Nvidia beat fourth quarter earnings estimates by $0.57 (~12%) and raised guidance for the first quarter above expectations. Ultimately, shares climbed back to the level they were at before the nervous excitement began as AI chip demand continued to accelerate.



Generative AI has reached a tipping point and demand for artificial intelligence is exploding. In the fourth quarter, the company’s sales more than tripled and earnings increased nearly six-fold. Demand is extremely robust, and the company will be short supplied for the foreseeable future. Investors expect its earnings will double again in the upcoming year, as Nvidia extends its streak of shattering expectations. CEO Jensen Huang said, “Demand is surging worldwide across companies, industries, and nations.” Nvidia H100 accelerator chips serve as the backbone of artificial intelligence and companies like Amazon, Meta, Microsoft, and Alphabet are scrambling to acquire them.

Generative AI represents a technological leap that pushes past the boundaries of prior generations of computing. Until this breakthrough, computers relied on complex algorithms to crunch numbers, solve equations, and manipulate statistics at ever increasing speeds. Generative AI, however, has the ability to learn, adapt, and create, using not only calculations but also text, images, sounds, and other inputs. This is having a significant impact on various fields, from drug discovery to artistic creativity. Nvidia’s chips happen to be perfect for building and training artificial intelligence models because they are so adaptable. The company developed a software ecosystem over the past decade that makes it easy for developers to manipulate and optimize their chips, as opposed to competitor’s chips that are purpose built and less malleable. Nvidia is clearly in the dominant position for the initial wave of AI, though competitors like AMD and Intel are trying to catch up.

It’s becoming increasingly clear that AI will become ubiquitous; it’s already being adopted at an alarming rate. Nvidia’s report reassured investors that AI’s prolific spread isn’t slowing down, but we’re hearing that from many other companies as well. UnitedHealth Group noted how it uses AI to improve customer service and employee productivity, Bank of New York Mellon is using it to do mundane or repetitive tasks. Nvidia noted that nearly every automotive company in the world is using AI, for design and efficiency, though many are also developing autonomous driving capabilities. Quest Diagnostics is using it to improve quality and JPMorgan is using it to improve fraud detection. AI is not just about Nvidia, or the Magnificent 7; it is already impacting companies across the world. As Nvidia’s earnings confirm, investments in AI aren’t slowing down for the foreseeable future, which is good news for the stock and the stock market.

 

Crypto Digging Out
Mon, Feb 26, 2024

After some weakness overnight, prices in the crypto space have seen a significant turnaround today. Bitcoin, for example, has rallied nearly 5% from its lows earlier in the session and has now rallied to new 52-week highs. When the Bitcoin ETFs were first launched back on January 11th, prices immediately dropped by more than 20% in what looked like another sell-the-news event surrounding a Bitcoin milestone. As shown in the chart, though, in just the last month alone, the largest cryptocurrency has rallied more than 25%.



The rally in Bitcoin has also helped to dig it out of the hole it has been in for more than two years now. After falling just short of $68,000 per coin in November 2021, bitcoin declined by more than 75%, but after more than tripling in less than 15 months, it is now just a little bit more than 20% from its prior all-time high. Will 2024 be the year?



Even more impressive than the recent rally in Bitcoin has been Ethereum’s run. Over the last month alone, the second-largest crypto has rallied 39%. That’s more than Nvidia (NVDA)! Despite the monster rally over the last month, though, Ethereum remains 35% below its November high of $4,800.

 

Democratic (NANC) Trading Trumps Republicans (KRUZ)
Tue, Feb 27, 2024

Just over a year ago, a pair of interesting ETFs debuted. The Unusual Whales Subversive Republican (KRUZ) and Democrat (NANC) Trading ETFs seek to track the performance of stock investments of sitting Congressional members. The Republican ETF (KRUZ) would track those investments of Republican members while the Democratic ETF (NANC) would track those of Democrats. As shown below, the past year has seen Democrats come out as winners. The over 30% total return for NANC is almost twice that of KRUZ and is also several percentage points stronger than the S&P 500 ETF (SPY).



Not only is NANC the better performer of the two since inception, but it is also significantly larger. As shown in the chart below, NANC currently has assets under management (AUM) of $27.89 million compared to only $9.35 million for KRUZ. While NANC has consistently held a large AUM since inception, we would note that it really took off in the past few months.



Both of these ETF have hundreds of holdings with KRUZ being the smaller of the two with 488 while NANC has 748. NANC is not only large, but is significantly more top heavy. The top ten holdings of that ETF account for roughly half of its weight, whereas KRUZ's top ten holdings are just under 20% of its weight.

As always, what conversation about top-heaviness is complete without a mention of the mega-caps. That group of stocks are some of the largest holdings in NANC. Microsoft (MSFT) is the single largest with a 7.44% weighting followed by 6.1% from Amazon (AMZN), 5.1% from Apple (AAPL), and 4.7% from NVIDIA (NVDA). Using our Custom Portfolios tool, below we show the 26 holdings of NANC that currently account for at least 0.5% of weight. Continuing its relentless rise, NVDA is of course the best performing one of those stocks and is deeply overbought alongside most others on this list.



Shifting over to KRUZ, as previously mentioned, weights are distributed a bit more evenly. As such, below we show the 28 stocks with weights that are above 1%. The largest holding is Intel (INTC) at a 2.35% weight. Albeit a big drop down the market cap ladder, HVAC company Comfort Systems (FIX) is the next largest holding at 2.24%. That comes as the stock has experienced an impressive rally of close to 40% in the past month alone. ConocoPhilips (COP) is the only other stock with a weight of more than 2%, while Accenture (ACN) is the next largest at 1.99%. While further down the list in terms of its weight, mega caps also make this list with NVIDIA (NVDA) and Amazon (AMZN) on the board.

 

Beware of February 29th
Wed, Feb 28, 2024

While we can't buy more time, tomorrow marks the rare occasion, occurring roughly every four years, when we all get an extra day. Leap years, as they're known, seem straightforward at first glance - every four years, right? However, there's a small twist. Typically, a year divisible by four is a leap year, but years ending in '00 are only leap years if they're divisible by 400. For example, 2000 qualified as a leap year, but 1700, 1800, and 1900 did not.

Now, let's look at historical data. Since the New York Stock Exchange adopted the five-day trading week in late 1952, the S&P 500's average performance on the last trading day of February has been flat, with a median change of 0.00%. However, when the last trading day falls on Leap Day (February 29th), performance has been weaker. The S&P 500's median performance dips slightly to a decline of 0.13%, compared to a small gain of 0.06% on the last trading day of every other February. Interestingly, the last trading day of February, regardless of being a leap year or not, has shown weakness in recent years, experiencing negative returns in the past nine years. Whether or not the pattern plays out this year remains to be seen, but even if it does, it would be a small price to pay for an extra day!

 

DJIA and S&P 500 Down 15 of Last 19 on February’s Last Day

Before the market can close the books on February, it still must contend with its historically weak last trading day. Since 1996, the S&P 500 has declined 20 times in 28 years on the last day of February. DJIA and NASDAQ have been just as bearish. Average losses on the last day range from –0.48% by DJIA to –0.39% from NASDAQ. The best gain on the day for the major averages was in 2000 while the worst decline was in 2008.

In the leap years since 1950, DJIA and S&P 500 still lean bearish. DJIA has been down nine times in thirteen occurrences and S&P 500 has declined eight times. Average performance is –0.07% for DJIA and –0.06% for S&P 500. NASDAQ is slightly better in leap years, up five of nine, but down four of the last five. NASDAQ’s average performance is a meager +0.01%.

More recently weakness appears to have only been intensifying as DJIA and S&P 500 have been down nine straight and 11 of the last 12. NASDAQ has tried to buck this bearish trend with three gains in the last four years. Should February’s last day see declines again this year, it could be a solid setup for the historically bullish first trading day of March.

 

Why Stocks Up In Both January And February Is Quite Bullish


“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” Winston Churchill

First off, happy Leap Day! We get an extra day every four years and hopefully you have fun today.

Well, so much for February being a historically weak month. The amazing bull market continued and the S&P 500 is about to close higher in both January and February. We noted in As Goes January, So Goes the Year? The Bulls Hope So that a higher January tended to suggest future strength, well, things get even better when the first two months are higher. Here’s what tends to happen after a positive January.



How amazing is this? After the S&P 500 gained in both January and February (like 2024 is about to do) the next 12 months were higher an amazing 27 out of 28 times! The final 10 months were higher 26 out of 28 times, with the returns in both cases much better than the average returns.



The S&P 500 was up 19.9% in years that saw both January and February higher, as the chart below shows. We aren’t expecting 20% gains this year, but we sure wouldn’t complain about them if they happened!



Lastly, it isn’t just the first two months of 2024, as remember we saw a big rally the final two months of last year as well. We found 14 other times stocks were higher in November, December, January, and February and for the full calendar year (so 2023 returns) the bulls were smiling every single time, with an average return of 21.2%.



We’ve been overweight equities since late 2022 and have remained there ever since. It wasn’t very popular this time a year ago saying stocks were going higher and a recession wasn’t happening, as it went against what the masses were saying. Well, right now we see very few reasons to change our bullish outlook and a higher January and February does little to change that.

 

A 5% February: What Worked and What Didn't
Thu, Feb 29, 2024

The S&P 500 finished February with a gain of more than 5% for just the 11th time in the index's history since 1928. Below is a look at prior 5%+ gains in February along with the S&P 500's performance in March and for the remainder of each year. The last time we had a 5% February was 2015. That March, the S&P fell 1.74%, and the index fell 2.88% from the end of February through year-end. Let's hope we don't see that type of action for the remainder of 2024, although a repeat of 2015 would be a lot better than what investors experienced in 1931 when the S&P rallied 11.37% in February only to fall 54.96% for the rest of the year!



Below is a look at our key ETF performance matrix highlighting total returns across asset classes in February, year-to-date, and year-over-year. Mid-cap growth (IJK) was the best area of US markets in February with a 9.58% gain. Dividend stocks (DVY) were the weakest area with a gain of just 1.16% during the month. Looking at sectors, Consumer Discretionary (XLY), Industrials (XLI), and Materials (XLB) actually performed the best in February, beating out Tech's (XLK) gain of just 4.7% even though the semis (SMH) were up 14%.

Outside of the US, China (ASHR) finally had a big month along with Israel (EIS), which gained 8.6%. Mexico (EWW) and Spain (EWP) were the only two country ETFs that fell in February.

Natural gas (UNG) once again fell sharply, adding to its year-over-year decline of more than 50%. Finally, fixed income ETFs were broadly lower in February, led down by the 20+ Year Treasury ETF (TLT).



Within the S&P 500, there are 67 stocks that show up in at least one of eight "AI" ETFs traded here in the US. As shown below, the 67 "AI" stocks in the S&P were up an average of 5.7% in February compared to a gain of 3.6% for the 433 non-AI stocks. On the year, the 67 "AI" stocks are up 5.9% versus a gain of 2.6% for the non-AI stocks. Given how much some of the most well-known AI names like NVIDIA (NVDA) are up so far in 2024, it's surprising to us that there isn't even more separation in performance between the AI and non-AI groups.

 

The Best and Worst Performing Stocks of February 2024
Thu, Feb 29, 2024

The average S&P 500 stock rose 3.87% in February even though the index itself was up more than 5%. You can check out the performance of various ETFs across asset classes in February in this post, but below we take a look at the best and worst-performing individual S&P 500 names during the month.

While NVIDIA (NVDA) got a lot of attention (as always) after its most recent blowout earnings report, two stocks outdid the "King of AI" in February: Constellation Energy (CEG) and Ralph Lauren (RL).

Additional big winners in February included 20%+ gainers like Quanta Services (PWR), GE HealthCare (GEHC), Axon Enterprise (AXON) -- the maker of Tasers and video software for police departments, Tapestry (TPR), and Uber (UBER). Other notables include Diamondback Energy (FANG), NXP Semi (NXPI), General Electric (GE), Vulcan Materials (VMC), and Eli Lilly (LLY). And finally, even Disney (DIS) managed to make the list of the 30 biggest winners in February with a gain of 16.17%.



Not everything went up during the month, however. In fact, of the S&P's 500 stocks, 350 were up and 150 were down in February. That's pretty weak breadth for a 5%+ up month.

Below is a list of the 30 S&P 500 stocks that fell the most in February. Notably, three of the five biggest losers were from the Communication Services sector: Paramount (PARA), Charter (CHTR), and Warner Bros. (WBD). Other big blue chips that fell in February include Amgen (AMGN), Adobe (ADBE), Palo Alto Networks (PANW), Comcast (CMCSA), and Deere (DE).

 

S&P 500 Best on First trading Day of March Last 24 Years

First trading days of months have a bullish reputation and March is not an exception. Reviewing the last 24 years of data reveals S&P 500 has the best record, advancing 66.7% of the time with an average gain of 0.35%. NASDAQ is second best based upon frequency of gains, up 62.5% of the time examined with an impressive 0.63% average gain. DJIA has been modestly softer, also up 62.5% of the time with an average advance of 0.27%.

March’s first trading day strength has not been limited to just the last 24 years. Since 1950, DJIA has advanced 50 times in 74 years (67.6%) with an average gain of 0.23%. S&P 500 has been nearly as consistent, up 63.5% with an average gain of 0.24%. NASDAQ has also been a solid performer since 1971, up 33 times in 53 years (62.3%) with a respectable 0.35% average.

 

Here’s Why We Believe the Economy is Doing Fine


Happy March 1st! Yesterday was Leap Day and we threw an extra special Facts vs Feelings event to celebrate: a 4 hour live stream with some of the top experts in the world of investing and finance, including Dan Ives (Managing Director and Senior Equity Research Analyst at Wedbush Securities), Cathie Wood (Chief Executive Officer and Chief Investment Officer at ARK Investment Management, Libby Cantrill (Head of US Public Policy, Managing Director at PIMCO), and Neil Dutta (Partner, Head of Economic Research at Renaissance Macro Research). Ryan and I had a lot of fun, and it took a village behind the scenes to put it on (thank you to all the folks at Carson Group). If you missed it, keep an eye out for individual Facts vs Feelings episodes with each of our guests, which will be released over the next few weeks.

If I had to find a common thread across all our guests, it was a general sense of optimism around the economy and markets. Neil Dutta put it succinctly when we asked him what the story of the economy was right now. His response: “The economy is fine.” He went on to add that investors have been so focused on looking for risks over the last decade, that a big risk right now is that folks could potentially miss the upside. Historically, Neil’s been more right than anyone else on how the macroeconomic environment has transpired over the last 18 months, and most importantly, he’s been right for the right reasons. We’ve been in the same camp as Neil, which is a big reason why we continue to overweight equities in our House View portfolios. In fact, in our long-term oriented strategic portfolios – amongst the most popular models at Carson – we are at our maximum possible overweight to equities.

I want to walk through some of the data Neil mentioned in our conversation.

Yesterday, we also got the personal consumption index (PCE) inflation data, the Federal Reserve’s (Fed) preferred metric of inflation. There was a spike in inflation in January, mostly on the services side. But there’s good reason to believe this is a one-off “January seasonality effects,” which will ease over the next few months. The big picture is that inflation is easing. Core PCE inflation, which strips out volatile food and energy components, is running at a 2.5% annualized rate over the last three months, and 2.6% annual rate over the last six months. A year ago, these metrics were running around 5%, so the January spike in inflation data is likely just a bump in the downward trend.



A big reason to be skeptical of another inflation surge is what we’re seeing in the labor market. For one, wage growth is not accelerating. The Employment Cost Index (ECI), which is considered the gold standard of wage growth measures, continues to decelerate. As of the fourth quarter of 2023, ECI for private sector workers was running at an annualized pace of 3.7%, well below peak levels in 2022 to early 2023. It’s only slightly elevated relative to the 2017-2019 average of 2.9%. Nevertheless, the downtrend in wage growth suggests the January inflation spike is not the beginning of an uptrend.



Another sign that we’re not likely to see a burst of wage growth (and inflation) is that the rate at which workers are quitting their jobs has fallen significantly over the last ear. As a percent of the workforce, the number of workers quitting their jobs is now at 2.4%, well below where it was a year ago, and in fact, even lower than where we were pre-pandemic. Lower turnover implies that the labor market is not as hot as it was and validates what we’re seeing in the wage growth data.





As I noted above, wage growth is still elevated relative to where we were pre-pandemic. That’s not necessarily a bad thing – inflation can still remain muted if productivity is running strong. And we’ve seen some evidence of that. Over the last three quarters, productivity growth has run at an annualized pace of 3.9%, the strongest pace outside of recessions since the late 1990s. (Labor productivity “artificially” goes up during recessions and their immediate aftermath, as the same level of output is generated by fewer workers.) In fact, Neil made a good point that the lower quit rate is likely boosting productivity. If a worker sits at the same seat for a longer period, they likely become better at their jobs.



Ultimately, what matters for an economy that runs mostly on consumption is inflation-adjusted income growth. Relatively strong wage growth combined with decelerating inflation means real incomes are growing. Along with the latest PCE inflation data, the government also released personal income data, which perhaps got less attention than it deserved. Over the last three months, real incomes excluding transfers (like social security) are running at an annualized pace of 4.2%. For perspective, it was running at 2.6% across 2018-2019.



Yeah, the general consensus is the economy is fine. Perhaps more than fine.

 

Typical March Performance: Second Half Better

Over the recent 21 years March has been a decent performing month for the market. Average gains over the period range from a low of 0.78% by DJIA to a respectable 1.40% by NASDAQ. March typically opens positively but selling pressure and weakness tend to follow quickly thereafter with choppy trading until around mid-month. From here on the market generally rallied to finish out the month. End-of-Q1 portfolio adjustments have contributed to additional choppy trading during the last three or four trading days of March. Election year average performance is influenced by across-the-board double-digit losses in 2020, but March’s pattern is similar with weakness in the first half and modestly improved trading in the second half.

 

5 Things that Are Unlikely to Change Irrespective of Who Wins The 2024 Election


The 2024 Presidential Election is looking like a toss-up, as is control of Congress, although Republicans are solidly favored to flip the Senate. At the same time, the candidates haven’t really discussed their post-election policy preferences in any detail beyond just broad statements. There’re clearly a lot of things that will depend on who wins the election and control of Congress. However, I want to focus on five things that are likely to continue irrespective of who wins the election.

Defense Spending Is Likely to Rise
Defense spending is currently just 3.6% of GDP, which is close to the lowest on record. It’s very likely that this will only increase in the years ahead, in contrast to what happened in the 1990s or in the early 2010s.



In fact, production of defense and space equipment has been ramping up recently. It was up 14% year over year as of January and is currently running 11% above 2019 levels. This will be a tailwind for the economy.



The US Is Likely to Remain the Largest Oil Producer in the World
US oil production has been hitting new records month after month, rising to 13.3 million barrels per day (bpd) in December 2023, which is 10% above its December 2022 level. Prior to the pandemic, production had peaked just under 13 million bpd. Production has now doubled since 2011.

US oil production raises a lot of hackles on both sides of the aisle. But the reality is that oil production has surged under the Obama, Trump, and Biden administrations. The couple of times it pulled back was in 2015-2016 and in 2020, in both cases due to economic stress rather than any policy coming from the White House. Oil production in the US is going to mostly depend on the economy and the worldwide demand for oil, rather than who’s president.



The Budget Deficit Is Likely to Remain High
Irrespective of who’s president, or who controls Congress, the path of least resistance seems to be more spending, which means the deficit is likely to remain high. The deficit was about 6% of GDP in 2023, and the Congressional Budget Office (CBO) projects it’s going to remain close to that mark over the next decade.



Here’s the thing: It’s very likely to actually be more than the numbers in the charts above. CBO assumes parts of the Tax Cut and Jobs Act (TCJA) that President Trump signed into law in 2017 will “sunset” (expire). The TCJA had two parts: Corporate tax cuts, which were mostly permanent, and individual tax cuts, which are set to sunset at the end of 2025, which means individual taxes are set to jump higher on January 1, 2026. Expect a lot of market anxiety as we get closer to that deadline, since it’s a big “economic cliff” that will immediately hit consumer spending.

Safe to say, neither party is likely to let that happen (remember, 2026 is also a midterm election year). Fromer President Trump has already said he’ll renew all the tax cuts. President Biden has said tax cuts will be renewed for households earning less than $400,000, while expiring for wealthy individuals. He also wants to raise the corporate tax from 21% to 28% (it was 35% pre-TCJA), but this is likely to face stiff opposition from his own party, let alone Republicans (who are very likely to control the Senate).

In any case, the budget deficit is likely to increase. Realistically, cutting entitlement benefits, especially Social Security or Medicare, is the only way to make a big dent in the deficit. Together, they make up more than a third of the federal budget, and spending on these is only projected to rise. Defense and non-defense discretionary spending make up under 30% of the budget. For perspective, only if these were cut to zero in 2023 would the federal government have run a slight surplus.



At the same time, a large majority of Americans don’t want Congress to touch entitlements, and politicians know that. President Biden and former President Trump have already said they’re not going to touch Social Security or Medicare. There ends any realistic path to “tackle” the deficit.



Interest Rates Are Likely to Remain High
It seems logical to go from high budget deficits to high interest rates. In fact, interest costs for the federal government have spiked recently, rising to 3.7% of GDP. This is higher than what we saw over the 2010-2019 period, and the historical average of 3.1%. However, interest costs averaged more in the 1980s and 1990s, and the economy did fine. In fact, between 1995 and 1999, interest costs averaged 4.1% of GDP.



The reality is that interest rates are set by the Federal Reserve (Fed), at least short-term rates. But even longer-term rates depend on Fed policy expectations. And rates are likely to stay higher because the economy is likely to be stronger over the next few years. Even if we do see a recession, it seems unlikely that the Fed will lower rates to almost zero percent again.

The other side of higher rates, and higher costs for the Federal government, is that American savers are the biggest beneficiary. American savers are now getting more than 5% on cash, and they like it. In fact, 41% of US government debt is held by the US private sector – households, nonprofits, and businesses. That’s up from just 24% in 2014. On the other hand, foreigners hold just 23% of federal debt, down from 33% in 2014.



The Dollar Is Likely to Remain the World’s Reserve Currency
There’s always talk about the US dollar (USD) losing its dominant currency status, and the chatter usually rises during election season. To put it plain and simple, the USD’s dominant role is unlikely to end any time soon for three reasons:

First, the world has confidence in the US, and thereby the dollar. And this isn’t just about being the “cleanest shirt in a dirty laundry.” The US has several structural advantages. We have the world’s deepest and most liquid financial markets, thanks to the size and strength of the US economy. We generally emphasize open trade and unrestricted capital flows relative to other countries. Finally, we have a strong rule of law and property rights, and a history of enforcing them.



Second, the USD is the world’s most popular medium of exchange when it comes to trade, and even trade not involving the US. On top of that, foreigners like to borrow in dollars as well, and even more so over the last decade. Of the total amount borrowed in foreign currency, dollar-based borrowing accounts for 62% of it, up from 56% in 2012. Network effects can be very hard to dislodge.



Third, the US is “willing” to maintain massive trade deficits. Foreigners sell a lot of stuff to Americans, and they get USD in return. Instead of using all those USD to buy US manufactured goods, they hoard it. Or buy US financial assets with it, including Treasuries, which are the safest, most liquid securities in the world (for the reasons mentioned above). This is why there are so many dollars, and Treasuries, held by the rest of the world, and the dynamic is unlikely to shift any time soon.





So, there you go. Amidst all the noise you’re going to hear about the 2024 elections, these are five key things that are likely to stay on their current path. Of course, central to all this is the state of the economy, and right now we’re optimistic about where it’s going. Markets are too, amidst rising profitability.

 

Semis in Uncharted Territory
Wed, Mar 6, 2024

The unbelievable rally in semiconductors resumed this morning as the Philadelphia Semiconductor Index (SOX) has erased all of Tuesday's 2%+ decline and is just below its record high from Monday. As of this writing, the SOX is more than 14% above its 50-day moving average, and the closest it has been to that average since early November is 3.99%.



While the SOX has been making record highs for a number of weeks now, in just the last few days, it also reached another milestone for the first time in over two decades. The chart below shows the ratio in the price of the SOX to the S&P 500 since 1994. During the dot-com bubble, the ratio peaked at 0.9553 in March 2000 before crashing down to less than 0.22 in late 2008. In the 15+ years since that low, the ratio has been steadily digging itself out of that hole, and it finally saw the light of day last Friday, March 1st. With the SOX just recently crossing 5,000 and the S&P 500 trading at around 5,100, we're almost to the point where the SOX could overtake the S&P 500 in terms of its price level.



While the SOX is up just under 20% on the year, the wealth hasn't been spread evenly across its components. At the top of the list, NVIDIA (NVDA) has rallied nearly 80% while Coherent (COHR) is up over 50%. Behind those two leaders, another eight stocks in the SOX are outperforming the index so far this year. However, that means another 20 components or two-thirds of the index have underperformed the index year to date. It may be a good year for semis at the index level, but try telling that to the third of the index that's not only trailing the gains of the index but also down for the year.

 

16 Charts (and Tables) to Know This Election Year


“Americans will always do the right thing – after exhausting all other possibilities.” -Winston Churchill

With Super Tuesday now in the books, the fact that we have a presidential election coming this November is getting very real. Although we aren’t going to predict who will be our next president, we are going to share many of our favorite charts and tables to know this election year.

Without further ado, here are 16 charts to know this election year.

The best year for stocks is a pre-election year (like 2023), while midterm years (like 2022) are the worst. Election years gain 7.3% on average, but are higher a very impressive 83.3% of the time.



“I don’t make jokes. I watch the government and report the facts.” -Will Rogers

Be aware the majority of that 7.3% gain tends to happen later in the year, as stocks are historically down for the year in March of an election year. After solid mid-year gains, the S&P 500 has stalled, on average, in the immediate pre-election months when uncertainty is at its highest, before rallying after the election into the end of the year as markets gain clarity on what they have to work with, both in the White House and in Congress. But gains are steadier throughout the year (after a slow first quarter) when a president is up for re-election (see below).



Breaking down the four-year presidential cycle by quarters shows the first quarter of an election year usually isn’t very strong, while the best quarters are the fourth quarter of a midterm year and early in a pre-election year, exactly how things played out this time.



“The problem with political jokes is they get elected.” -Henry Cate VI

Historically, stocks have done much better in a pre-election year under a president in their first term (up more than 20% on average), while midterm years for a new president do much worse (virtually flat). That played out this time, with stocks down big in 2022 and bouncing back big in 2023. What matters now is election years, which have seen stocks do much better when a president is up for re-election versus a lame duck president.



Breaking this down more showed that stocks gained during an election year the past 10 times when the president was up for re-election. Not to be outdone, pre-election years have been higher nine of the past 10 times a president was up for re-election.



The majority of those 12.2% gains an election year of a first-term president indeed tended to happen later in the year though, as we show below.



“George Washington was the only president who didn’t blame the previous administration.” -Source unknown

Here’s another way to show how election years do based on whether the president is up for re-election or we have a lame duck president. It’s pretty clear things go better when a president is up for re-election.



“The best argument against democracy is a five-minute conversation with the average voter.” -Winston Churchill

Interestingly, a negative return in a midterm year (like we saw in 2022) has been followed by a higher pre-election and election year every single time. That is 17 out of the past 17 pre-election and election years higher after a negative midterm year. Do you really think this will be the year this amazing streak ends? We don’t and are looking for 18 out of 18.



Another angle on this is after a 20% gain in a pre-election year, we’ve had a higher election year the past seven times going back to 1950. Also, look at how normal it is to have red in a midterm year, then a big bounce the following year. If this tendency continues to play out, it’ll be more good news for 2024.



How have stocks done under President Biden? Don’t shoot the messenger here, but the Dow was up 21.4% his first three years in office, which ranks 11th out of the past 21 Presidents using Dow data back to 1900.



Another popular question is how stocks do based on which party is in the White House. Now is when people might want to throw something at me, but it is what it is. Historically, stocks have done better with a Democratic president versus a Republican in power. As with many of these numbers, we would take this with a grain of salt. Despite the tendency to view the president as responsible for the economy, the president alone often has a relatively small impact compared to broader economic forces. Do you think the fact that 10 of the last 11 recessions started under a Republican president is because a Republican was in the White House? We don’t.



“If the opposite of ‘pro’ is ‘con’, then the opposite of progress must be Congress.” -Sam Stovall

Who is in the White House can matter, but we’ve found the make-up of Congress might matter more. In fact, a split Congress has been much better for investors, as stocks incredibly have gained the past 13 times we’ve had a divided Congress! Maybe the best Washington is one that can’t get anything done? Or maybe it’s that what does get done requires compromise and common cause and is not just political overspending to reward constituents. Those checks and balances the founders put in place might be even more important than we realized.



Speaking of which, let’s not forget what friend of Carson Investment Research Sam Stovall once told us. If the opposite of ‘pro’ is ‘con,’ then the opposite of progress must be Congress! That’s a joke you can use all year now.

Here are all the possible scenarios based on the White House and make-up of Congress.



The way we like to put it, it isn’t about red or blue; it’s about green, as you can see below.



“If voting made any difference, they wouldn’t let us do it.” -Mark Twain

How investors feel going to the polls always matters, as we’ve found that if there was a recession in the two years before an election then a president up for reelection usually loses. And if there was no recession, they would usually win. In fact, this has worked every time since Calvin Coolidge way back in 1924, who was reelected despite a recession in the previous two years. But then Coolidge had only become president in August 1923 when President Warren Harding died unexpectedly, and the economy was already rebounding at that point.



“Bipartisan usually means larger than usual deception is being carried out.” -George Carlin

Lastly, how stocks do the three months before an election also has some predictive ability. If stocks are up, the incumbent party usually wins and if they are down, the incumbent party usually loses. This didn’t work in 2020, but it has worked 20 out of the last 24 elections.



“In America, anyone can become president. That’s the problem.” -George Carlin

In conclusion, we’ve seen many investors let their pollical beliefs get in the way of their investment choices, to their detriment many times. Some people didn’t like President Obama, but if they let that dictate how they invested they missed big gains. Likewise, some people didn’t like President Trump, but if they got out of the market because of it they also missed big gains. And currently President Biden’s approval rating is quite low, but stocks have soared and are at all-time highs. The bottom line is a strong economy is what will drive stock gains, not who is or isn’t in the White House.

 

Overwhelmingly Bullish, Even for All Time Highs
Thu, Mar 7, 2024

Not only has the S&P 500 returned to new highs but sentiment is also making a push higher. As shown below, the latest AAII Sentiment Survey showed more than half of respondents surveyed responded as bullish. At 51.7%, bullish sentiment is now slightly below the multi-year high from December 21st (52.9%).



While a majority of respondents are reporting as bullish, less than a quarter are bearish. This week, bearish sentiment fell to 21.8% which was a half percentage point uptick versus the previous week.



Regardless of the increase in bears, bulls netted a much larger increase resulting in the bull-bear spread to rise to 29.9. Again, that indicates the most bullish sentiment since December.



Given the S&P 500 is currently trading at record highs, we wanted to check in on how sentiment currently stacks up versus past record closes for the S&P. As shown, it looks a bit more optimistic than normal given where the market is trading as bullish sentiment has historically averaged a reading of 41% when the S&P 500 was at record highs. While the gap between the historical average and now is less dramatic, bearish sentiment likewise shows greater optimism now than in the past.



Finally, we would note that it is not only the AAII survey which is showing high levels of optimism. Factoring in other weekly sentiment surveys, the Investors Intelligence survey saw the highest number of bulls since July 2021 and the NAAIM Exposure Index showed active investment managers added long exposure to equities in the most recent week. Putting them all together into our Sentiment Composite, aggregate investor sentiment now ranks in the 98th percentile of all periods since data began in 2006 and a hair below those from last December. Before that, the only periods with similarly elevated levels of sentiment were December 2010, December 2013, early 2015, around the new year of 2018, the end of 2020, and the spring of 2021.