by Jason Bodner

July 16, 2024

This is a big year – for bugs: It’s a major cicada emergence year, as a group of periodical cicadas emerge from the ground at the same time. Cicadas spend 13 or 17 years underground as nymphs. Then they all come up together, shed their exoskeletons, and live their short lives for a few weeks above-ground.

This year is a special cicada convergence cycle year, because you’ll be able to see all seven periodical cicada species in one year. That won’t happen again until 2037.  Specifically:

  • For the first time since 2015, a 13-year brood will emerge in the same year as a 17-year brood.
  • For the first time since 1998, adjacent 13-and 17-year broods will emerge in the same year.
  • For the first time since 1803, Brood XIX and XIII will co-emerge.

I get it. You hate bugs, so that really doesn’t make this a very special year. But there is another reason – a far more profitable “emergence” cycle happening this year. And it’s starting right now.

I’m here to tell you that I believe small caps and Real Estate are the next big wealth creators, and $6 and a half trillion dollars is waiting to pounce on them… the largest cash bubble in history is set to pop big time!

Money-Market-FRED-Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

And we all got to see a big pin prick last week…. The IWM (Russell 2000 tracking ETF) was up +3.59% on Thursday. That is an immense move. That equates to about $93 billion in added value. And on Friday, the index was up 1.17%, making for 6.11% gains last week, adding over $150 billion in market value.

It’s a big noticeable breakout. Here is the IWM 6-month chart- notice the juicy breakout:

Big-Money-Stock-Buy-Sell-Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Look at how significant it becomes when we overlay unusual buying:

Big-Money-Stock-Buys-Sells-Chart-2

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

A quick study shows that this magnitude of a positive move has happened only 145 times since IWM came into existence on May 26, 2000. Put another way: This has only happened 2.4% of all trading days in the last 24 years, so it’s uber-rare. And it’s uber good.

Here are the average returns looking forward from such rare events:

IWM Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

That gives us a high probability of this breakout gaining momentum.

The other interesting thing to note is that yesterday the QQQ (NASDAQ tracking ETF) was down 2.19%. That means that the spread between IWM/QQQ was 5.79%. That’s wicked. And it means something.

First, it means the move is likely to continue. My colleague Luke shows this with crystal clarity:

Forward Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It also means the pressure on NASDAQ was large-cap tech cracking. The narrative thus far has been that the top seven stocks have been powering the indexes to “fake” returns, as I showed in earlier columns. This chart shows how the top 50 stocks of the S&P 500 have been carrying the whole index.

Total-Return-Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

And the subsequent chart shows how 60% of the S&P was trading below the 50-day moving average.

Comparison-Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

That all just changed…Here’s the huge opportunity I see: The cash hogging mega-caps are overweight all over the place. Value is only to be found in the small caps and yield sensitive stocks like REITs.

The catalyst to buy them is the rapidly stabilizing economic situation, as inflation keeps cooling.

Jerome Powell is encouraged. And as for poor President Joe Biden, he is stumbling badly. Signs of his age and infirmity are clear, and his horribly timed gaffes are making his victory less and less likely.

In the absence of another white knight, Trump becomes the clear front-runner. And Trump is:

  • Pro small business (small caps)
  • Anti-tax
  • Pro Real Estate
  • And definitely not afraid to pressure the Fed to cut, cut, cut!

The beauty here is that it doesn’t necessarily matter who wins. And going back to our chart comparing the NASDAQ and Russell 2000, look at the two tracking ETFS after each of the most recent elections:

IWM Table 2

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Notice the big under-performance of QQQ vs. IWM? That’s the value opportunity right now: The unloved small caps have been under serious pressure due to the high-rate environment

That is coming to an end. A September rate cut probability now sits a 90%!

And as rates fall, value will fly. Unloved areas are suddenly attracting big money. One group that should also benefit are REITs with their high yield. They will become loved once again. REITs legally are required to payout between 75% and 90% of profits in the form of a dividend.

This is a trade no-one is talking about. It has the potential to make a lot of people money in the next year in specific groups of stocks. As with all things in life, first come – first served.

It isn’t AI.

It isn’t weed.

It isn’t particularly sexy.

But it’s real.

And it’s starting to happen.

Right now.

Which is a good thing, because summer is typically lame for stocks in general. Looking at seasonality patterns since 1990, we see clearly that August and September are weak months for stocks:

Index-Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This means summer opportunities for some stocks. But if the small cap rally keeps trucking, be careful: If you blink you could miss it! The emergence of small caps coincides with the emergence of the big black bugs. One’s the stuff of nightmares, the other is the stuff of dreams, and I know which one I’ll focus on.

As for fretting over who will occupy the White House? “We have power over our minds, not outside events. Realize this and you will find strength.” – Marcus Aurelius

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
An Assassination Attempt + The Curse of the Mega-Caps

Sector Spotlight by Jason Bodner
This is a Big Year – For a Lot of Reasons

View Full Archive
Read Past Issues Here

About The Author

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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