by Jason Bodner
May 16, 2023
A few years ago, I took my family to Key West, where we found one of coolest museums I’ve ever seen. In fact, it might just hold the key to the next bull market.
Mel Fisher was a chicken farmer from Indiana who had a deep passion for treasure hunting. He eventually moved to the seaside to pursue his dream of seeking shipwrecks. It didn’t go so well, for a long time… For decades he tried in vain – losing investors’ money and drawing harsh criticism. Nevertheless, he persisted, at great personal cost. He eventually lost his oldest son, daughter in-law, and a diver when their boat sank. But his persistence paid off. In 1975, Mel and his team discovered a Spanish Galleon called The Atocha. The shipwreck yielded 40 tons of gold and silver, including 114,000 Spanish silver coins known as “pieces of eight,” gold coins, emeralds, and 1,000 silver ingots. It was estimated to be worth $50 million then – or $2.5 billion today. It was also only half of the loot, the remainder still undiscovered.
There is plenty more to this fascinating story, but what resonated with me today is the concept of ballast.
These were usually stones, or sometimes precious metals or bars that would be placed at the bottom of the hull of a ship, as heavy metals lowered the center of gravity and stabilized the vessel to promote smoother sailing. Fisher’s team even discovered wrecks by identifying large piles of ballast stones nearby.
Without ballast, ships will flail around much more. Ballast is the great stabilizer of ships. Now largely replaced by water, ballast is used in the largest cruise ships and oil tankers at sea today. It is essential.
It’s also essential in markets, and it’s largely missing right now. The ballast of the market is simply sitting in “dry dock.” Last week I detailed the record amount of cash on the sidelines. According to the St. Louis Fed, $5.223 trillion dollars is sitting in money market funds. That is the highest amount on record, ever:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
To me, that is the equivalent of witnessing an entire armada wobbling to and fro, because all of the ballast is sitting on the docks. Admirals wouldn’t send ships out like that, knowing that main support is needed.
Investors can’t expect a low volatility stock market without the anchor support of cash being infused. And that’s a key issue right now. Negative media and sentiment still pushed record levels of cash off to the sideline. But despite that, equity markets started rallying from October lows, when we least expected it. That’s often how it goes with stock market bottoms, but there’s also a quantitative explanation…
The Big Money Index (BMI) measures unusual institutional money flows in and out of stocks. When it goes into oversold territory, history suggests higher prices will follow. The BMI doesn’t listen to news reports or get emotional, and in October it signaled a market bottom had arrived:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
There was no “all clear” signal from the mainstream media for investors to jump back in and time the market perfectly. There never is – it’s always hindsight that identifies market lows. It was, however, nice confirmation for those who use the BMI as a market pivot indicator, because many major and minor indexes have rallied immensely since last October 12, led by those inside the blue circles, below:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The rally was led by both growth and value. Sectors rallied broadly, except energy, the shining star of 2022 – a year when all other sectors flailed around. Tech was strong, particularly semiconductors.
But since April ended, the market feels annoying. Things aren’t going up the way you and I want them to. Even though earnings are working. Cautious guidance is holding the market back as sellers punish shares, seemingly unfairly. But those are mostly our emotions, which have no place in investing, in my opinion.
Let the data guide us here. Look at the seasonal cycles again. October through April is the seasonally strongest time of year since 1990, with November as the top performer, followed by December and April.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This also means that May through September can be annoying.
Couple this with no market ballast, and we will likely see a rocky summer. But that’s exactly when quant-driven stock picking is crucial. When markets are bullish, returns are relatively easy to come by. We got spoiled by that phenomenon, even expecting it. But when there’s no clear trend and volatility is higher than usual, that’s when a stock picker is worth their weight in gold (or emeralds, or pieces of eight).
Once ballast returns and cash flows into equities, there will be smiles again. But for that to happen, recession fears must subside. There is record cash on the sidelines because uncertainty equates to fear of loss. No one wants to lose money. I certainly don’t. But the patience required to feel safe and invest almost always means missing out on a huge chunk of gains.
Let me illustrate:
Hypothetically, Investor A (a perfect investor who hits the market low exactly) bought SPY on October 12th at a closing price of 353.54. Yesterday’s close was 412.13 representing a 16.6% difference. Assume sometime in the fall investor B finally feels safe to dip a foot in the water – but SPY rallied another 10% to 453.34. To continue our silly example, assume we rally to the moon and one year from now the SPY is 25% higher from there, and it closes at 566.68. Happy Days! Investor B is now sitting on a nice whopper of a +25% return. But perfect investor A is sitting on a +60.3% return… 2.4 times investor B!
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Henry Kissinger, who turns 100 later this month, said: “If you don’t know where you’re going, every road leads to nowhere.” Investing by emotion (in this case, waiting to “feel sale”) can feel better but it can really affect performance. Using data to guide decisions might pay off when all is said and done. That is why I covet a quantitative non-emotional approach to investing to show us where we are likely headed.
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Countdown to the Debt Ceiling Deadline
Income Mail by Bryan Perry
Business Development Companies to Benefit from a Credit Crunch
Growth Mail by Gary Alexander
On James Madison’s Birthday, Let’s Review His Rule Book
Global Mail by Ivan Martchev
Real-Time Inflation Indicators are Quite Weak
Sector Spotlight by Jason Bodner
To Find Big Treasures, You May Need Ballast
View Full Archive
Read Past Issues Here
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
Important Disclosures:
Jason Bodner is a co-founder and co-owner of Mapsignals. Mr. Bodner is an independent contractor who is occasionally hired by Navellier & Associates to write an article and or provide opinions for possible use in articles that appear in Navellier & Associates weekly Market Mail. Mr. Bodner is not employed or affiliated with Louis Navellier, Navellier & Associates, Inc., or any other Navellier owned entity. The opinions and statements made here are those of Mr. Bodner and not necessarily those of any other persons or entities. This is not an endorsement, or solicitation or testimonial or investment advice regarding the BMI Index or any statements or recommendations or analysis in the article or the BMI Index or Mapsignals or its products or strategies.
Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.
Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.
None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.
One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.
ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:
- ETF shares may trade above or below their net asset value;
- An active trading market for an ETF’s shares may not develop or be maintained;
- The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
- The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
- Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.
Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.
Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.
This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.
FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.
IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.
Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.
Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.
FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.