by Ivan Martchev
February 27, 2024
We have gone back into the pattern of seeing corrections last only one or two days, as sharp as they may be, with investors rotating into the broad market as the tech sector gets extended, despite remaining very strong, with no sign of abating. Notice the top line (below), representing the S&P 500 (SPX) Index, atop the line beneath it – the S&P 500 Equal Weight Index (SPXEW), representing the same components of the S&P 500 Index but not weighted by market cap (size). Two stocks make up about 14% of the market cap of the S&P 500 but only 0.4% of the SPXEW, as they are equal to all 500 stocks in the index. The large performance differential you see below is basically due to the tech sector.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
There was a big rotation into the broad market on Friday, as the NASDAQ 100 registered a fresh all-time high in the first 30 minutes of trading and basically went downhill for the rest of the day, but before you begin to extrapolate this for the foreseeable future, the pattern has been that the tech sector gets overheated, it rotates for a day or two, and then starts chopping higher again. There is no telling when we will get an intermediate-term correction, which is certainly due, but it can come from higher levels.
I have heard the suggestion that tech is as extended as it was in early 2000. That is not the case. We have surging sales and earnings at the moment, and much lower valuations than we had in 2000, when we had only surging share prices. NASDAQ needs to more than double and possibly triple from here to get as frothy as 2000, which so far has not happened. We hope that won’t be the case, if we want this rally to continue.
The broadening of the market that we witnessed in November and December disappeared in January, but it is beginning to come back at the end of February. So far, I view the glass as half full and I expect further gain for stocks, particularly if we see falling inflation data and Treasury yields that are behaved.
I think the hotter inflation in January was due to the fact that January is the time when companies tend to raise prices and do more hiring. That also explains the stronger employment report. Historically, January has been harder to predict when it comes to inflation and employment. Looking ahead, I see more good news on the inflation front, and employment won’t deteriorate as the economy is holding up well.
Nearly 35 Years Waiting for a Fresh All-Time Nikkei High
It took the Nikkei 225 Index from December 1989 till February 2024 to register another all-time high. Arguably, in December 1989 the Nikkei was hopelessly overvalued, kind of like the NASDAQ Composite in March 2000, but it took the NASDAQ 12 years to make a fresh all-time high on the heels of accelerating sales and earnings from the tech sector, while it took the Nikkei much, much longer.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Japan has a lot of problems – one of which is its declining population – but coming out of deflation is a big deal here, and Warren Buffett saw in 2020 the record COVID deficit spending globally that resulted in the inflation tsunami of 2021-2022. It is this surge in inflation that is helping the Nikkei perform much better. Warren Buffett did put billions in Japan in 2020 and upped his stake last year.
Given that the Japanese are notorious momentum traders if we get more good news on the “coming out of deflation front” in Japan, the Nikkei is likely to be again a top performer in 2024.
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
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Income Mail by Bryan Perry
What Could Stop the Market’s Mojo?
Growth Mail by Gary Alexander
Are We in Market Bubble Territory Yet?
Global Mail by Ivan Martchev
The Broad Market is Not Extended at All
Sector Spotlight by Jason Bodner
Is the Market a Short-Term Casino, or a Long-Term Sure Thing?
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Ivan Martchev
INVESTMENT STRATEGIST
Ivan Martchev is an investment strategist with Navellier. Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser’s Mutual Funds and associate editor of Personal Finance. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool, MarketWatch, and others. All content of “Global Mail” represents the opinion of Ivan Martchev
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