by Jason Bodner
June 4, 2024
It’s June. Summer is here, or at least very near. It’s time for a little Beach Boys’ “Good Vibrations.”
A very close friend, “Jerry,” changed my life. Meeting him, I was struck by his happiness and focus. He had control of his life: he worked out, was successful, and was completely balanced. Knowing several people in common, one day someone’s name came up and I innocently said: “He’s a good dude.”
Jerry said: “Interesting… I think he’s a total zero.”
I was shocked at how cold that sounded, but Jerry explained that this person exhibited negative energy and offered little towards Jerry’s personal growth. Then he dropped the bomb on me: “I only associate with people who demonstrate qualities that are positive in my life. All others – I have no time for.”
That sounded arrogant at first, but suddenly it was obvious, and practical: Surround yourself with the best people and positive people, and your life will be better. Jerry’s concept was that trying to be everyone’s friend was a fool’s errand. Instead, I should only focus on surrounding myself with positive influences.
Scientifically, Jerry was right. You’ve heard that laughter is contagious. Well, so are negative emotions. Various studies validate this. The National Institute of Health says: Social interactions can trigger emotional contagion between individuals resulting in behavioral synchronicity. This is used every day by businesses – to grab your attention – for marketing, news, “click bait,” ads – to make you buy something.
It doesn’t take much to start a negative mind-state. In the last week, my New York Rangers lost three straight games and are out of the Stanley Cup playoffs. The same week, some stocks I own or recommend were hit hard. When that happens, I notice that I’m suddenly drawn to negative news and commentary.
Objectively, these bad vibes validate my feelings, and they also keep my spirits down. That lets my emotions creep in. Looking at the data, however, brings back sanity. Let’s see what the data says now:
What’s in the Market “Vibes” Lately?
The market has hit some turbulence. Last week saw the most unusually large selling since late October:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Some sobering economic news, and key companies issuing weak guidance kindled the fire of selling. Interestingly, the top three strongest sectors mimic (or drive) this pattern. Here we see sector ranks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Charts of unusual buying and selling by sector clearly show similarities to the broader market. Energy saw the most selling since January. Industrials, and Technology saw the most selling since October:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Financials, Materials, and Utilities were quiet, only displaying slower buying – not elevated selling:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Discretionary saw the most selling since October. Staples and Health Care saw slowing buying and growing selling:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
There was nothing much to report in Real Estate and Communications:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Last week saw selling in small-caps and mid-caps. Some large caps were also sold.
Look how last week (left) compares to the first three weeks of May (right):
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
All these pockets of selling pressure caused a sudden drop in the Big Money Index (BMI):
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It’s too early to tell if this begins a new trend, or if this is just an air pocket. Some bellwether tech stocks are disappointing in their earnings and guidance. Heck, even Michael Jordan missed some free-throws! I chalk this up to doldrums more than a true reversal of trends for these businesses. Logically, humankind will always need more new and faster technology. On this oversimplified basis alone, I am not worried.
So. now that we have our negative emotions in check, let’s take objective stock…
The greed emotion says we all want stocks to rise forever. We know that the fastest point from A to B is a straight line, but when it comes to stocks, we seldom see a rocket’s glide path upward. It helps to look at prices over time. For instance, April was an uncomfortable month for stocks, however the S&P 500 hit all-time highs in May after its 30% peak rally from October lows. So now that we’ve arrived in June, what should we expect? Let’s look at some seasonal phenomena to get a clearer picture.
First, we visit our chart of monthly returns for the four main indexes since 1990. It tells us plainly that we should expect a mixed June, a July bump, and then a typically sloppy August and September:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That chart also clearly tells us that, historically speaking since 1990, we should gear up for a great fourth quarter through the next year’s 1st quarter. We know that things don’t always work out the way they should. Last week brought some unpleasant volatility spawned by the above earnings volatility, some downward revisions to GDP, and more war rhetoric, but still the S&P 500 rose 4.8% in May 2024.
Below I looked at unusual buying and selling the past few months. The column on the right shows the ratio of buying to selling each month since last October’s market lows. That is, hypothetically, if six stocks were bought and four were sold, then the ratio is 60% buys. We find that despite this bump in selling and a weak week to end the month, May 2024 still saw 60% buying on average.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So how does that compare with history? I looked at the average monthly buying and selling of stocks and ETFs since 1990. It’s fascinating to see how we are right on schedule compared to historical averages. It’s like you can see the market breathing: Green, breathe-in; red. breathe-out. May typically sees 56% buys.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This past April was a clear departure from the norm, but that’s to be expected over a 34-year data set. Remember what I said above: we should expect a mixed June, a July bump, and then a typically sloppy August and September. But also remember that the BMI fell for more than 10 consecutive days in April. The important thing here is that when that happened, forward returns were just great historically speaking:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Don’t cave into emotional contagion and fall into behavioral synchrony. Keep a cool head and embrace the expected summer volatility. It’s on schedule. It’s what normally happens. Summer volatility, like summer storms, are normal. But remember this seasonal quote: “Rain reminds all things to grow.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Are We Flirting with World War III While Over-Focusing on Politics?
Income Mail by Bryan Perry
The PCE Data Shows the First Signs of Inflation Cooling
Growth Mail by Gary Alexander
America’s New D-Day: The Day Debt Doubled Growth
Global Mail by Ivan Martchev
The Reversal of the Reversal
Sector Spotlight by Jason Bodner
It’s June. Time For Some “Good Vibrations”
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
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