by Jason Bodner
March 26, 2024
Being bored is fine for small intervals. But there is evidence that being “bored to death” is a real danger.
A University College London study reviewed questionnaires of 7,524 London civil servants from 1985 to 1988. An April 2009 follow-up found that participants, who reported feeling really bored during the first survey, were 37% more likely to have died by 2009 than those who said they were not bored at all.
Yikes! Maybe it was the London weather. In either case, market lovers beware! Ever-rising bull markets can indeed be boring. Sure, it’s exciting to watch our account values grow, especially after a rough stretch. But not much changes week to week. This is what we’ve been experiencing for most months since October 12, 2022, when the rally started. Last week, we got the dovish words from the Fed we wanted to hear: Rate cuts are coming. The market celebrated and rallied higher, ignoring all the details.
Just looking at the SPY (S&P 500 Tracking ETF) since November, and we see an unstoppable rise:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It’s not only the SPY. Looking at all the indexes, we see monstrous runs across the board:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It’s double-digit green almost across the board from 10-27-23, but the growth-heavy indexes have really performed phenomenally well. I highlighted those above in blue boxes. But that can become boring… I’ve been talking about the same thing each week since the lows were in, nearly five months ago.
When the lows tortured our souls, I used the Big Money Index (BMI) to identify an oversold market as an opportune buy-time. That is seen below with the amber line falling into oversold territory (green line).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The BMI has since risen sharply, along with the market, as an indication of heavy inflows. It rose and stayed above overbought for longer than average. When it fell out of overbought, it defied the norm, since falling from overbought is usually a sign of weakness on the horizon. Not this time: The reason is that the buying only slowed from extreme levels. It was not replaced with selling, which is what usually confirms the weakness. No, not this time, we saw normal healthy buying. This can be seen in the green bars below.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In both charts (stocks left, ETFs right), we see December saw off-the-chart buying. When this December data rolled out of the BMI calculation, the BMI fell to more normal levels. In short, we averted a sell-off.
So, if this is what we were waiting for in terms of the Fed, what’s next? Clues can be found in what has already been gobbled up by big institutional money managers this year. Below we see that small and mid-cap stocks have been dominating the buying landscape. That hasn’t really changed much lately:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Instead, what has changed, and what catches my interest, is the changing of the guard for sector leadership. Technology was #1 for many months. It has been displaced and slipped down to #4 in the rankings. What is even more interesting is that Energy is now #1, followed by Industrials, and Financials:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Could that be where the opportunities lie? Let’s look at sector buying patterns to gain more insight.
First, we see a parabolic move in XLE – the S&P 500 Energy Select Sector ETF. That accounts for a sharp spike in the technical score, as energy stocks are being gobbled up. Rallies like that are rarely sustainable and I would expect some sort of reversion to the mean soon.
The question is: What are the underlying fundamentals like? So I looked at the unusual buying and selling of energy stocks in the last week, and found that the averages break down like this:
Energy sector MAP Score: 70.0, Technical Score 75.6% and Fundamental Score of 62.0%.
This tells me to beware of being lured into fundamentally weak energy stocks being lifted up with the whole sector. You want to focus on quality when riding a new sector trend. Focus on identifying leadership by buying the best fundamental quality stocks in an emerging trend.
Here we see energy (top left), in comparison to the other sectors:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In my opinion, mature but intact sector up-trends like Industrials, Financials, Technology, and Staples –have a higher probability of smoothly continuing than energy, as there is not a current catalyst to break the trend. Materials are closer to energy, in that the technical rally is sharp. Discretionary, Real Estate, and Health Care display more of a sideways pattern. That said, buying still visibly outweighs selling, but technically, the sectors just aren’t performing the same way as the leaders.
Utilities and Communications continue to be the laggards with nothing really exciting there.
Currently, earnings season is over, and the market looks a bit extended. I would anticipate some volatility as we navigate this period between earnings seasons. That’s fine and natural, but the longer-term trend is clear: It’s risk on for equities. And as rates come down, this will bode well for any stocks with higher debt service on their books. Lower rates also stimulate more consumer buying, which ultimately falls to the bottom lines of companies. Growth companies also benefit handsomely from lower rates.
Technology stocks have reigned supreme for many months. Right now, however, the regime shift favors Energy, Industrials, and Financials. For long-term portfolio construction, this is good from a diversification standpoint. In either case, the same phenomenon holds true, both now and historically: There are leaders and laggards in every sector. One would be served well by focusing on fundamentally superior stocks with growing sales and earnings, expanding profits and unique business models.
I say: Avoid market boredom by finding the best stocks out there! It’s a cure that has worked for me. Doing so will help you be prepared for non-boring markets! And while you contemplate that, remember the words of Arthur Schopenhauer: “The two enemies of human happiness are pain and boredom.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Role of Nvidia and Super-Data in this “Brave New World”
Income Mail by Bryan Perry
It’s Time to Lock in High Yields
Growth Mail by Gary Alexander
Economics Isn’t Rocket Science (It’s Harder than That)
Global Mail by Ivan Martchev
If the Fed Plans to Cut Rates, Then Why is the Dollar Firm?
Sector Spotlight by Jason Bodner
Is This Bull Market Boring You to Death?
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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