by Jason Bodner

January 31, 2023

Let’s face it – the news is depressing.

As I write, a scan of the news today (January 27) brought up the following cheery stories:

  • Memphis police set to release video showing fatal beating of Tyre Nichols
  • George Santos’ Fraudulent Signature Could Be Final Nail in Coffin
  • ‘Trump Fatigue’ in New Hampshire Complicates 2024 White House Bid
  • Half Moon Bay Suspect Claims He was Bullied, Admits Killings

There’s also the recent Idaho killings, the Biden documents scandal, the tech job cuts, the corporate default notices – not to mention the escalating Russia/Ukraine war tensions.

Oh yeah, and the earth’s core may be reversing direction, and asteroids might wipe us all out.

And everyone is still talking about a recession that never seems to arrive.

All these news stories greet us like friends every morning without fail.

With friends like these – who needs enemies?

It should come as no surprise that nine in 10 Americans get their news digitally, and about half of those people get it through a mobile device like a smartphone. Interestingly enough, 40% of Americans say they get their news from Facebook. The inherent problem there is that Facebook’s algorithms feed you more of what you interact with. That’s because it increases their engagement and thus their chances of selling you products from their advertisers. So if you are drawn to stories of subjects like COVID or war, you’ll see more and edgier versions of bad news in a never-ending effort to keep your eyeballs fixed on Facebook.

Personally, I only log on to Facebook once a year, on my birthday, because I can’t handle all the noise.

The mainstream media is the same story – selling emotional tales that will engage viewers and turn them into consumers of their advertisers’ products.

All this is to say – we need to treat the news with a grain of salt and a cup or two of skepticism. Consider the motives behind the stories you consume, and things will become clearer. When we move away from emotions to a data-driven view of the world, things start to look different. Take, for example, the news list I showed you above. That would surely cast a downbeat mood over investors. We should expect stocks to slump, in a vacuum, but if you’ve been paying attention, you’ll know that’s not the case so far this year.

Checking the data instead of the news, I go first to the Big Money Index (BMI), which gauges unusual buying and selling on a 25-day moving average. Think of it as unusually large inflows or outflows.

As you can see below, the BMI has been rising since January 1:

BMI Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Last week, BMI took a slight dip. That’s due more to a slowdown in buying as opposed to selling. You can see that in the chart of unusual buying and selling. But despite a breather, stock buying is strong. And ETF buying has been even stronger. That indicates strong inflows of investor capital into equities.

Big Money Stock-Buys-Sells-ETFs

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

If things were as bad as the media wants to tell you they are, maybe investors would be dumping stocks and going to cash, instead of partying like it’s 1999. But they’re not. They’re buying stocks! 

And investors aren’t just buying reliable mega-caps and parking money in safe havens. As you can see in the chart below, since January 1st, 2023, 84% of all unusually large buying has been in companies valued at $50 billion or less, and 34% of all buying has been in companies valued at $5 billion or less.

Big Buying-Selling Market Cap

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

When investors think the world is ending, they sell small companies and buy big ones, especially those with safe dividends. But again, that’s not happening here.

It also matters what sectors are being bought. Check out these charts below.

PIE Charts

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The chart on the left shows the distribution of all unusually large buying since 2023 began. The chart on the right shows the same buying but for only the four days at the start of last week, January 23-26.

It is as clear as day that investors are finding opportunity in Tech, Discretionary, Health Care, Financials, Industrials, and Materials. These six sectors are traditionally the engines of growth for the economy.

What I am saying here is that the buying habits of large investors indicate optimism, not pessimism.

We can also see this in the latest sector rankings. The top sectors of 2023 thus far are Discretionary and Tech. Notice also that “safe” sectors like Utilities, Health, Staples, and Real Estate are near the bottom.

That speaks volumes.

Sector Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

If we dig a little deeper, we can look at each sector individually to see what the buying has been like.

Here I show you three-month charts of each sector. There is a lot going on visually, but there is one clear golden thread weaving through all of them: Appetite for growth.

Discretionary vs XLV Tech vs XLK

Materials vs XLB Energy vs XLE

Industrials vs XLI Comm vs XLC

Financials vs XLF Real Estate vs XLRE

Staples vs XLP Health Care vs XLV

Utilities vs XLU

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It’s clear to see: Investors are buying everything except the bad news. Naturally this could all shift on a dime with the upcoming Fed meeting this week. Anything can happen when Jerome Powell opens his mouth, but I suspect the economic data is showing signs of slowing that will make the Fed think hard about a more sustained aggressive stance. A key area I’ll be looking at is shelter costs, since this flawed cost analysis metric is “owners’ equivalent rent,” a subjective measure, since it relies on the emotional state of the person being surveyed. If they’re thinking good times are on the horizon, they are rosier about the price they think they could rent their home for. If they are worried, those mental prices fall.

The Fed can’t fight the market for long – because that looks bad. The 10-year Treasury yield fell from an October peak of 4.234% to 3.53% today, nearly a 17% drop. Meanwhile, the Fed funds rate (the effective rate banks loan money to each other) this time last year was almost nothing: 0.08%. Now it’s 4.1%.

We will see what happens, but so far, my prediction of strong markets from October 2022 through April 2023 is on target. The SPY has rallied +13.8% since its September 30th close.

If you’re going to follow the news religiously, do yourself a favor and try to contextualize why you see what you’re seeing. Form your own opinions, then look at what investors are doing. Have confidence in your own view, because as George Herbert said: “Skill and confidence are an unconquered army.”

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Jason Bodner

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

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