by Jason Bodner
September 27, 2022
Humans are smart, but animals know how to hide. For instance, the Arctic fox can change colors with the seasons. Humans aren’t good at hiding, and in the recent market landscape, there’s nowhere to hide.
Today we keep looking for pockets of strength, or resiliency, in a declining market. Interesting patterns emerge when we dig below the surface, but first let’s check the big picture.
The mood is gloomy. Since February, we have had a war driven by an unpredictable and erratic leader in Russia. This war is also placing pressure on energy and agricultural markets worldwide and continuing to gum up the supply chain. As if that weren’t bad enough, we must deal with crippling inflation and an ever-closer threat of recession. Additionally, the man the world listens to most, Jerome Powell, just gave us all a sobering dose of reality. He addressed the world last Wednesday, September 21st, after delivering an interest rate hike of 0.75%, as largely expected, but what was unexpected was his tone in language.
Long story short, Powell telegraphed higher rates for a longer time, and painful times ahead for many Americans. He expects job losses, higher credit card interest rates, and other fun stuff like that. Basically, he told the world that it will be a tough time for everyone for longer than anyone expected.
The good news is that he delivered clarity by telegraphing another rate hike in November of 0.75% and another one in December of 0.50%. The market hates uncertainty, and Powell took uncertainty away.
For a short New York minute, stocks initially rallied after Powell’s address, but then the market quickly gave in to a wave of selling that seemingly didn’t stop until the final hour on Friday.
A few weeks back I warned you that September is historically sloppy and volatile. This month is clearly no exception. The SPY (S&P 500 Tracking ETF) has fallen 12.5 percent since it’s August 16th peak. The QQQ (NASDAQ Tracking ETF) has fallen a wicked 15.8 percent since its August 15th peak.
Remember, though, those mid-August peaks came long after the market went oversold according to the Big Money Index (BMI), on July 14th. We can see that chart here, and how it went overbought briefly thereafter. It’s been plummeting ever since and currently stands at 35.4%. It’s not going to stay there. Due to the 25-day moving average, it will likely continue to fall:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If there’s any good news to be had, based on current trends the BMI could go oversold as soon as Friday September 30th. That assumes the current level of selling sustains itself, which will be unpleasant to go through, but remember an oversold BMI is a bullish indicator, with 32-year history of solid forward gains.
In the meantime, selling is accelerating. In the chart below. we see all stock buys and sells daily. You can see clearly that selling is picking up and is approaching mid-summer levels:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
As selling picks up and we get closer to oversold, that indicates we get closer to a bottom. This is also echoed in the level of selling we are seeing recently. Look at how sharply that selling is picking up:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Also note that huge ETF selling usually occurs near bottoms. It’s also important to consider that within this selling there are many bond ETFs being sold as interest rates rise, so it’s not just stocks getting sold.
Let’s take a quick look at how this selling is distributed since September 1st. We can see clearly in the chart below that mid-cap stocks are the ones taking the brunt of the selling. While there are still mega caps getting sold, they seem to be resilient overall in comparison to the rest of the market:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The following chart continues to show us that there’s really no place to hide. Since September 1, most sectors are feeling the pain. Technology has seen the most selling while energy has seen hardly any:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This brings us to our next table showing the strength of sectors. Energy continues to reign supreme, followed by utilities, staples, industrials, and healthcare.
This paints a picture of defensive areas being where investors are looking to hide:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This is echoed with top ranked ETFs: In our data, 14 of the top 20 ranked ETFs are energy ETFs:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Given all that’s going on, I thought I would look at where the best “hiding places” might be, so I looked for the most resilient stocks and sectors since August 15. Starting with our universe of 6000+ stocks, we routinely filter down to stocks that are easily traded by institutions without impacting the price heavily. That leaves us with 1,450 stocks. Over the past month, utilities, healthcare, and energy have been the most resilient sectors. They have also been the strongest sectors year-to-date:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Next. we look at market cap distribution. This table doesn’t offer much encouragement: Nowhere to hide:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
What about hiding out in dividend-paying stocks? They are often associated with safe havens and good hiding places. But are they? Look at the following table, which slices up the stocks by range of dividends paid. One might think the higher the dividend the safer the landscape. This data says it doesn’t seem so:
There’s almost nowhere to hide! The markets are now struggling to digest the uncertainty caused by the Fed’s new certainty. By that, I mean Powell gave us a clear path forward but that comes amid uncertainty about corporate profits and economic conditions. Near-term volatility is difficult to navigate, but this I know: Investors win long-term by owning companies with the best fundamentals and solid support from top professional investors. Right now, companies rising to the top of our lists are energy, health care, utilities, and staples. If there is a place to hide in the near term, it will likely be found there.
But we must also remember that investing carries risk as well as long-term reward, or as Muhammad Ali put it: “He who is not courageous enough to take risks will accomplish nothing in life.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
What the Fed Will Do Next, and What it Means for Investors
Income Mail by Bryan Perry
This is a Good Time to Re-Check the Charts
Growth Mail by Gary Alexander
Surprise! October is the Best Month in Mid-Term Election Years
Global Mail by Ivan Martchev
Some Global Markets are Starting to Break
Sector Spotlight by Jason Bodner
There’s Nowhere to Hide in This Market
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.