by Jason Bodner
November 22, 2022
News stories constantly beat us over the head with recession fears, interest rate hikes, supply chain issues, and threats of nuclear war. It’s enough to wear anybody down, so one might think that investors would reflect this dour tone. But the market is rising again, so things aren’t always what they seem.
Last week the producer price index was announced to have risen just 0.2%, well below expectations of 0.4%, sending markets soaring higher. At least that was so until mid-day, when news broke of a possible Russian missile strike in Poland. Markets quickly went negative, then reversed positive when the threat was deemed less serious. The end of the day (Tuesday) still found a nice rally for U.S. equities:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
But that rally didn’t truly convey how significant the recent market strength has been and, more importantly, what is getting bought. Looking at a chart of unusual buying and selling shows a clear shift:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The spike in buying that started November 10 is unlike anything we’ve seen so far in 2022, and when we zoom out, we see how significant the buying has been – it’s the most buying we’ve since March of 2021:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That buying carried through to this week. And, as I said, it’s what’s getting bought that matters. Below we can see all unusual buying and selling last week in U.S. stocks, broken down by sector. Something should jump out right away: Growth areas, such as tech and discretionary, led the buying by a mile. The two sectors accounted for 40% of all unusual buying. We haven’t seen action like this in easily a year:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
On the contrary, Health Care accounted for 40% of unusual selling. This sector has been performing for weeks now, and this indicates profit taking. Energy did not log any meaningful sell signals. The sector is quite extended and would need to pierce through its 55-day lows in huge volume to start registering sells.
Let’s look at recent buying and selling by sector in another way. Here we see charts of all 11 sectors. I’ll organize these charts by strength/buying to weakness/selling. We see Energy, Staples, Discretionary, Industrials, Materials, Financials, and Technology getting inflows in recent weeks and recent days:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
On the contrary, Real Estate, Communications, and Utilities have been seeing sell signals. These sectors are rate sensitive. Large money inflows and outflows tell us that the investor still worries about higher rates. As rates rise, dividend-centric stocks like these groups come under pressure. But you can see the heavy pressure has waned recently in conjunction with strength in more growth-oriented areas. Health Care has admittedly been mixed, but it hasn’t really been strong enough to include in the first group.
As we see below, Energy still ranks first. Tech and Discretionary are climbing slowly out of the basement. Remember – the sector rankings below consider not only technicals, but also fundamentals.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now let’s look at what was bought last week in terms of company size. Below we see the breakdown of buying and selling by market cap: 87% of last week’s buying took place in small and mid-cap companies:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The value hunting continues from what we highlighted last week. Investors are buying weakened shares while slowing their pace of selling the dividend-centric and rate-sensitive securities.
Lastly, we look at a Big Money Index (BMI) that has been steadily rising from oversold conditions a month ago. The BMI will have pierced above 60% by the time this goes to print:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In 2022, only April and August have shown similar climbs in the BMI. But we are much closer to clarity on the possible future actions of the Fed and the economy than we were in spring and summer.
The recent price action is bullish, folks. Add to this the seasonally strong time of year, and an even historically stronger mid-term election bump from November 1st through April 30th.
All eyes and ears are on the Fed, which frankly is giving off a very mixed set of messages. Economist Ed Yardeni pointed out on November 17 that St. Louis Federal Reserve President James Bullard said (on October 14th) that he favored front-loaded hikes and a Fed Funds Rate (FFR) range of 4.50%-4.75%. But in a November 17th speech, he suggested the FFR may need to be in the 5%-7% range to fight inflation.
Yardeni also said that Kansas City Fed President Esther George is concerned that the Fed’s tightening could cause a recession, but she doesn’t want to “stop too soon” with hikes, and “Fed Governor Christopher Waller said Wednesday that he leans to ‘stepping down”’ the pace of rate hikes. San Francisco Fed President Mary Daly told CNBC Wednesday that a pause is ‘off the table right now’ and that the FFR range should be raised from its current targeted range of 3.75%-4.00% to 4.75% to 5.25%.”
But an inverted yield curve and recent equity buying suggest investors don’t believe all this double talk.
Things aren’t always what they seem, or as Edgar Allan Poe said: “All that we see or seem is but a dream within a dream.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
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A Look Ahead by Louis Navellier
Why I Expect $120 Per Barrel Crude Oil by Next Spring
Income Mail by Bryan Perry
The Stock Market Took a Stand Against Bullard’s “Taylor Rules” Talk
Growth Mail by Gary Alexander
Ten Trends to Be Thankful For (Part 1)
Global Mail by Ivan Martchev
Watch the Bond Market
Sector Spotlight by Jason Bodner
Headlines Say One Thing – Investor Action Says Another
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Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
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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