by Jason Bodner
September 7, 2022
We’re all human. We laugh, we cry, and we worry, but as a quantitative guy working in the investment world, my particular discipline doesn’t leave a whole lot of room for emotions. I realize that emotion is ultimately what moves stock prices, but it’s our fears and worries that usually deliver the most damage. ‘
Fear and worry are synonymous, and both are equally destructive. Fear served us well as cave people, as running from a predator could save our lives. But these days, as we live in relative physical comfort, compared to our ancestors, so we tend to worry about every other little thing. And that’s not a good thing!
Studies have shown that too much worrying can affect our physical health, our attitudes, even pain levels. But other studies have shown that most of our worries never come to pass. Not only that, but humans are more resilient than we think. When negative events actually do come to pass, most of us find ways to cope with them. If you stopped to think about all the things you’ve ever worried about, versus how many of them actually came true, you might discover that you wasted a lot of energy worrying over nothing.
It’s wild how just a few words can kick up a hornets’ nest of worry. When Fed chair Jerome Powell spoke a few seemingly harsh words just over a week ago, worry came back into the stock market. On August 26, he delivered an 8-minute speech from picturesque Jackson Hole Wyoming, and markets sank ever since.
Since the close on August 25th, the SPY (the S&P 500 ETF) fell 6.5%, while the QQQ fell nearly 8%.
You’ve got to admit – the guy has a way with words.
But let’s just contextualize this for a moment… since the June 16th lows, the SPY rallied 17.7% and still sits 7.4% above those lows. The same goes for QQQ; it rallied 23% and still sits 9% above the lows (as of the September 2nd close). So is it worth “worrying” in the long run. The short answer is it’s not worth it!
Let’s start with an overall view of the market. Recently, on July 15th, the Big Money Index (BMI) hit oversold levels. I alerted you that selling was unsustainable and that’s usually a good time to buy stocks.
Interestingly, the market began its strongest rally after that date. I also recently mentioned here that September is historically the weakest month for stocks going back more than 30 years. Stocks also typically rise in the fourth quarter. Since 1990, the S&P 500 on average has risen 1.4% in October, 1.8% in November, and 1.5% in December for a cumulative fourth-quarter gain of nearly 5%.
It turns out that in midterm election years market returns are weak on average – until the final quarter:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If we look at the strong buying that happened from July 15th through August 15th, we notice huge inflows of capital into small and mid-cap stocks, as you can see in the first chart (left side) below:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Then, a different picture emerges in the right side, when we look at the buying and selling pattern since August 18th, with profit taking in small and mid-caps, while buying slowed significantly:
In the next chart, we can see that the Big Money Index has fallen from overbought as it dropped below 75%. When that happens, historically, we can expect further weakness in the markets.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This lines up for our thesis of expecting a weak September. As we can see below, stock and ETF buying has slowed, and we’ve even seen some selling:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Finally, even the strong sectors of late have seen a slowing. Buying in discretionary, tech, financials, health, industrials, materials and staples have dropped and even met with some selling.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Energy has resumed some strength, and utilities remain strong. Both are seeing some buying:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Communications remains weak. In real estate, we saw buying slow, replaced with light selling. What I find interesting is for all the talk about the housing market slowing, with mortgage rates rising, this level of selling does not indicate gloom among big investors:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Jerome Powell’s comments on August 26 kicked off a wave of worry, which is translating to newfound volatility. Based on the historical playbook, however, everything seems to be on track to adhere to the averages of past mid-term election years. Should that be the case, this bodes well for equity investors. Why? Because history says we have a lot to look forward to in October through next year – a Big Lift.
I think the Fed Chairmen knew full well that what he said would splash water on a hot market. He needs all the help he can get to fight inflation and cool a rising equity market – so he gave a tough talk.
I just presented some compelling data to be positive about stocks through the end of 2022. But I’m certain that many will find a way to worry anyway. They will find the negative arguments and succumb to the worry that the talking-heads deliver. But ask yourself: Is it worth the worry? We’ve seen anxiety cause physical effects, including pain. We’ve also seen most of the things we worry about rarely come to pass.
Elon Musk says, “If you get up in the morning and think the future is going to be better, it is a bright day. Otherwise, it’s not.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Deadly Calculus of War and Energy Prices in Europe
Income Mail by Bryan Perry
The Fed’s New Directive Is for a “Growth Recession”
Growth Mail by Gary Alexander
Where Did the Disappearing American Male Workers Go?
Global Mail by Ivan Martchev
EU Natural Gas Saga Hits Dramatic Escalation
Sector Spotlight by Jason Bodner
It’s Human to Worry, But It’s Not Very Profitable
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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