by Jason Bodner
December 28 , 2022
Is aging a disease? Most would say no, but the World Health Organization (WHO) added “aging” as a disease to the 11th edition of their International Classification of Diseases in June of 2018.
So, is an “aging” bull market a disease? It all depends on how you look at it. For instance –
October was strong but it saw more selling than buying! As I forecasted, November was also strong with the SPY surging 5.6%. The DIA, QQQ, and IWM all popped 5.7%, 5.5%, and 2.2% respectively.
Unlike October, November saw way more buying than selling. It was closer to our 33-year historical average of approximately 2:1 buying: There were 1571 buys vs. 711 sells. Buying across sectors was balanced – until Powell spoke at the FOMC press conference, splashing cold water on everything.
However, I haven’t seen a big data shift – largely due to volume. Despite recent dismal markets, volumes have been significantly below average, suggesting the sell-off is not a major shift in trend.
Also, while buying has slowed, I see no increase in selling.
And due to low volume not giving us much new to speak of, I’d like to review sector ranks (pulled from Mapsignals.com) for December. All data is taken from November 1-30, 2022:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Energy remains #1, seeing the most buying for the third successive month. A whopping 97% of all energy signals were buys, including 10.7% of all buys for November.
Oil and gas exploration companies – otherwise known as “Upstream Energy” companies – saw the most buys. November was volatile for oil. Despite that, there was no unusual selling.
Seasonal demand tends to fall for oil and gas in the winter with a pickup in the spring. Energy could remain strong through the New Year. President Biden continues to drain the Strategic Petroleum Reserves (SPR) unsustainably. This is in an effort to artificially suppress the price of gas for Americans. Production will have to rise to meet demand, which should further boost energy companies next year, as they are already booking record profits and sales.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
November began with industrials selling, but then they took off, with 81% of all industrials signals for November being buys! The blue spikes shifted the 25-day moving averages of buying and selling higher – meaning an industrials uptrend for November.
Industrials buys accounted for 14.5% of all buys for November. Buying focused on machinery and manufacturing. The most buys were in manufacturing of machinery with 69 stocks bought unusually for the month. Industrials selling was in Electrical Equipment and Power Systems stocks. But then suddenly things turned around quickly. Buying ramped up starting October 24th which was incidentally when the BMI rose out of oversold territory. Closely following was transportation and cargo manufacturing. Aerospace and defense manufacturing also saw inflows. The buying was enough to keep the sector second in the power rankings from the month prior.
Here’s how I read this data: Unusual institutional support of industrials stocks, specifically manufacturing, is not exactly recessionary. Time will ultimately tell, but if machinery and manufacturing are gearing up, if there is a recession, these investors believe it will be short lived and there is value to be found in the sector.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Staples stocks were also gobbled up in November, with 77% of Staples signals accounting for 9.7% of all buying for November. Investors bought Food and Staples Retail, Food, and Tobacco Production, and Household Products stocks. This makes sense as food prices are rising in the CPI. The good news is that the CPI says food prices are falling except for dining out. I know I’m not the only one annoyed at high menu prices. Restaurants, of course, are discretionary – not a staple.
General Merchandise Retail stocks show us something interesting. Investors bought department stores and off-price retailers. This doesn’t jibe with recessionary fears. I’m not signaling the all-clear – I only point out that there has been buying and no significant selling.
The media paints one picture, but data tells a different story. Again – time will tell.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Utility stocks climbed in the ranks moving up two spots, but on weak volume. Over two-thirds (69%) of its monthly signals were buys, but that accounted for only 0.5% of all buying for November. In short, there’s not much to talk about here! For perspective – only nine energy utilities stocks were bought, accounting for all buying in November.
Moving on to more exciting territory…
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The Materials sector also moved higher, with 78% of its signals as buys, accounting for 6.4% of all buys last month. There was buying in Chemical, Plastic, and Rubber Materials, Manufactured Products, and Mining and Mineral Products, most notably, Metal Ore Mining Materials.
This makes sense as commodities remain in scarce supply – especially in the mining world. For example, lithium is hard to find, and it’s an essential component to make EV batteries. This is also the case with several other rare-earth metals.
I imagine a bid will remain for stocks associated in any way with these ores until the supply chain issues start to resolve themselves – or if demand wanes (which I don’t envision any time soon).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Early month selling in Financials gave way to buying as 73% of all Financials signals were buys which accounted for 12.4% of all buying for November. Banking, Insurance, and Investment Services was where the concentrated buying took place. U.S. Banks got bought as well as Specialty Finance and Services. Commercial Finance Services also attracted capital. This makes sense as companies clamor to finance operations, fearing rates rising even more in the New Year.
Finance companies do well in higher-rate environments, as they make money on the spread.
We also saw solid buying in Insurance stocks, accounting for a quarter of all financials buying.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
While the health sector index rose in price, action underneath was mixed. It broke down as 55% buys and 45% sells. The volume, however, was large enough that the buys still accounted for 13.6% of all November buying! Half the buying was in Biopharmaceuticals: Non-System-Specific Biopharmaceuticals, System-Specific, and other Biopharmaceuticals.
Selling was isolated to the beginning of November and focused in Health Support Services.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Discretionary stocks saw huge buying in November, with 75% (239 stocks) of all Discretionary signals being buys – enough to account for a whopping 15.1% of all buys. The big surprise was that investors gobbled up Hospitality stocks. Breaking it down further – buying was focused in Arts, Entertainment and Recreation Providers, Restaurants, and Bars. Again, that’s anti-recessionary. If harsh times are indeed ahead – why then risk capital in non-essential areas of the economy?
Time will tell, but that data along with upcoming tech buying was constructive for stocks.
Buying was also observed in Consumer Goods, Retail, and Vehicles.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Tech also saw early month selling flipping to mid-month buying: 51% buys and 49% sells for November. Still, buys accounted for 13.5% of all November buying.
Starting with the selling, software stocks got clocked. The average MAP Score of those stocks was 37, due to weak technicals and mediocre fundamentals. Compare that to Software buying later in the month. The average MAP Score of those stocks was 64 – nearly double of those sold!
Fundamental rankings were a much better average of 63%. That tells me investors are selling duds with poor fundamentals and rotating into quality software companies with solid businesses.
As the tech unwind spreads to passive investors, selling must take place, that is, if managers track an index that falls, they must sell stocks. As that happens, it puts further pressure on indexes. This could persist until value hunters step in. That could have happened in the latter half of November.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
There were only 13 buys and 11 sells for the month. Communications accounted for 1% of all signals for November. Telecommunications stocks accounted for all the buys.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
There wasn’t much action in Real Estate stocks. The sector saw selling starting in early November followed by some buying. Buying was 53% while selling was 47%. But that didn’t amount to much, accounting for only 3% of all signals for November. The index rose like all others, but it wasn’t propelled by unusually large buying, like elsewhere in the sector ranking.
Both the buying and selling were concentrated in REITs: Real estate investment trusts.
Remember, the REIT offers a high-dividend payout because they are required to pay out 75% to 90% of their earnings as dividends. The CPI reflects that persistent inflation driver in shelter costs. Rents may still be high, but there’s evidence they are falling, which is the goal. And with new home inventories surprisingly rising for November, coupled with mortgage applications declining and new home sales as well – the horizon for Real Estate is shaky at best.
In December, Fed chair Jerome Powell halted the rally in stocks, but the truth is inflation is slowly coming closer to being under control. It will take more time, but restrictive policies are working.
The question is: How much is too much? As companies adjust guidance lower, analysts are cutting estimates, too. If the Fed goes too far and becomes too tight, recession is imminent – meaning more pain is coming. If they hit it just right- we get our soft landing.
November data showed an optimistic outlook. And while indexes slumped mid-December, the data is not riddled with selling. One might surmise that some of the negative price action has to do with tax selling and realizing some losses to offset gains elsewhere. This is normal for this time of year.
Remember, the fourth quarter is historically strong, which is what we saw. Despite a weak December, the S&P 500 is still up over 7% in the fourth quarter, through last Friday, with a short week to go. Adding to the optimism, since 1980, 10 of 10 mid-term election years showed positive returns for the S&P 500 from November 1st to April 30th. The average return for the S&P 500 during that time was +12.96%!
If history holds true for an 11th time – we are in for more upside in stocks.
“Keep your face to the sunshine and you cannot see a shadow.” – Helen Keller
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
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The Fed’s Battle to Keep the Debt Bomb from Exploding
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Powell’s Fed Has Flunked its “Dual Mandate” of Inflation Control and Job Creation
Global Mail by Ivan Martchev
The Yen Rally is Likely Over
Sector Spotlight by Jason Bodner
A Closer Look at All 11 S&P Sectors
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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