by Jason Bodner
December 24, 2024
Last year, the NHL New York Rangers won the President’s trophy. For non-hockey people, that means they won the most games in the regular season. At playoff time, I made it loud and clear here that I was a Ranger fan. Well, now they have gone from being a favorite to win the Stanley Cup to being out of a playoff spot in a stunning turn downward. Losing has become the norm, and people are writing them off – including me at times – but times like these are the right time to profess fandom and support.
When the chips are down, as the St. Louis Blues run (“from worst to first” in the 2019 season) proved, never assume any trend lasts forever. As usual, there are more reasons than just emotion. If I allow myself to get emotional, I get frustrated and tired of watching my guys lose so often. The short-term data says they suck, but the underlying data tells me that now is the time to be a “buyer” of Rangers “futures.”
Sound familiar? Stock investing shares the same quirk sometimes. Early last week, all was right with the world – and the stock market. We were at highs. S&P 500 earnings were great, with 74% of companies beating analysts’ estimates. Relatively speaking, inflation was within spitting distance of the Fed’s long-term 2% target. The economic data continued to be strong for the U.S. And Santa’s rally was expected to bring cheer at the end of a very good year. But then the market tanked – like the New York Rangers.
Instead of taking the next expected step higher, the market swan-dove off the staircase and went splat onto the floor. The Fed’s expected rate cut was not the problem. No, the issue was the Fed telegraphing just two future rate cuts for 2025 instead of four. That’s not bad news, just less good than the market expected.
Stocks sank and moods followed – much like the last two mediocre months (16 wins, 16 losses and 10th place in the East) of the Rangers’ crappy season thus far. But, the data say: “Don’t be a seller, be a buyer!”
After the Fed’s announcement, stocks slid to finish an abysmal day. The QQQ (NASDAQ’s tracking ETF) fell -3.6% last Wednesday. The day also marked the most unusually large selling we have seen since July, and it was the second largest selling day of the entire year (see the deep red line at the far right, below):
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Emotionally, it sucks to watch your portfolio’s values melt that significantly in one day, but I learned long ago not to invest with my emotions – it blew up my account. When I put my data glasses on, everything becomes clearer. I now know that huge selling is a sign of capitulation, even if it’s out of the blue. And looking at extreme stock selling over the past three years, we can see a clear pattern:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The data line up to show us an obvious correlation between huge selling and a market trough.
Let’s dig deeper into the data. I mentioned that the QQQ fell by more than 3.5% last Wednesday. I looked at the historic data, and since 2004 (20 years) it has fallen -3.5% or more 66 times out of 5,225 total trading days, or just 1.26% of the time. The forward returns after those 66 big drops were outstanding:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Next, when we look across the sectors, the selling was heavy. It was the heaviest selling of the year, or very close to the heaviest selling, for the nine of the 11 S&P sectors:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The good news is that we don’t historically have to wait long for a nice bounce in all 11 sectors! I looked back 20 years and ran the same returns for each sector ETF (Note: Real Estate and Communications did not exist until 2015 and 2018, respectively). Here are the returns – revealing a lot of long-term green:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
While we’re on the topic of sectors, here is the most recent ranking of sector strength and weakness. We can see that Technology, Financials, Industrials and Discretionary are at the top of the list. Except for Financials, these are growth engines of a normal bull market and an economy. This is what I like to see:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The forward data looks good for market down days like last Wednesday. It also looks good for the sectors seeing huge selling. Next, let’s look at unusually large selling data from MAPsignals.
Wednesday December 18th logged 334 unusually large sell signals. I looked back to find similar times in history. Since 2024, there were 94 prior instances out of 5,225 trading days, or 1.8% of the time.
You might expect what comes next – more juicy forward returns, historically speaking:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Inflation may seem high, but it’s not. The CPI for November was 2.7%, which a little bit hotter than the Fed’s long-term goal of 2%. It is important to note, however, that the CPI historical average since 1960 is 3.77%. So, while 2.7 is higher than desired, it is still far lower (30% lower) than the 64-year average!
Secondly, it appears that the futures market has the same predictive power of the bears who successfully predicted 28 of the last two bear markets. I found this on the Financial Times. The wispy purple lines are predictions. The solid blue is reality. Look at the beautifully wrong track record of rates predictions:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Let that sink in for a moment… The market reacts today to what it thinks will happen several months from now. And as it pertains to rates… well, let’s just say that I wouldn’t trust it that much.
The end of the year is here. I expect the Santa rally to bring us to January. Then seasonality tells us that January through May is a strong time of year for stocks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So, relax and enjoy some time with your family. It’s the most wonderful time of the year.
Tonight, Monday, I will watch my New York Rangers play the red-hot New Jersey Devils (2nd in the East) and trust that the Rangers will turn it around by playoff time. I’ll try not to get mired in the emotion of a loss. I suggest investors do the same. Focus on the data, which tells us we have much to look forward to.
As Dale Carnegie said: “When dealing with people, remember you are not dealing with creatures of logic, but creatures of emotion.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
My Six Predictions for 2025 – Part 1 (of 2)
Income Mail by Bryan Perry
The Fed’s Favorite Inflation Gauge Spiked the Market’s Punch Bowl
Growth Mail by Gary Alexander
My Top 10 (or 12) Books From 2024 – For Profiting from 2025
Global Mail by Ivan Martchev
Jerome Powell was a Party Pooper – Once Again
Sector Spotlight by Jason Bodner
When Good Stocks Tumble, Relax! They Will Rise Again
View Full Archive
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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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