Weekly S&P500 ChartStorm - Markets moved higher in May
Learnings and conclusions from this week’s charts: $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ(.IXIC)$ $Invesco QQQ(QQQ)$ $NASDAQ 100(NDX)$ $DJIA(.DJI)$ $GLOBAL X DOW 30® COVERED CALL ETF(DJIA)$ $Cboe Volatility Index(VIX)$
Markets moved higher in May (S&P500 up +4.8%).
Election-year return stats bode well for the remainder of 2024.
(however) there are an increasing number of technical red flags.
Semiconductors market cap weighting reached a new all-time high.
Consumer Staples are cheap vs the index (a risk + opportunity).
1. Happy New Month!
After the April correction, markets marched on in May, with the S&P500 up +4.8% on the month, placing it up 10.6% YTD (11.3% including dividends). Although the index closed down off the daily high, May saw a new all-time monthly closing high.
2. May Markets
Just about every major asset moved higher on the month, but notably the US Dollar + WTI crude oil prices + bond yields all moved lower (basically an easing of financial conditions) — pretty much the inverse of April, and helping lift asset returns. US Large Caps (S&P500) remain near the top of the table.
3. Election Year Momentum
Election years typically see markets rally — probably a mix of hope for a new beginning and policy tailwinds from the incumbent hoping to maintain their grasp on power. Anyway, interesting stats here show that if the first 100 trading days of the year were positive, the remainder of the year tends to be pretty good (likely a combination of the above effects + plain old momentum). And yes, this year the market was up about 11% in the first 100 days, so that gives us good odds (only 1 year: 1948 deviated from this pattern).
4. Earned It
Tech sector earnings continue to surge — in contrast to the index, and in contrast to global markets. It’s all riding on US big tech, they are the most expensive stocks and doing most of the work in taking the index higher, and they have the earnings growth to back it.
5. Warnings Warning
Technically we have seen the 4th highest cumulative number of technical warnings on the Nasdaq. The last 3 times it went beyond the 38 count marked 3 major peaks (1990, 2000, 2007) — and the last 2 times it reached similar levels to now, the market took a breather.
6. Inequality of Returns
On a similar note, the rate of change in equal vs market cap weighted relative returns has reached an extreme, and echoes a pattern often seen around market peaks.
7. Transcript Talk
Talk by S&P 500 companies on macro issues in earnings call transcripts has tapered off, and unsurprisingly talk on AI has taken off.
8. Exponential Trajectory
On a similar note, the Semiconductors industry market cap weighting has reached an all-time high (and observers of market cycles will note that Utilities recently made a record low: something very familiar to what happened around the peak of the dot com bubble). While that green line probably trends higher over time, it is interesting to reflect on all the hype around AI, and even ponder the timing of the NVDA stock split (maybe these are all going to be signs of the peak when we look back on this in the future).
9. Emerged Markets
You might not believe it, but EM equities have outperformed US equities since inception… however you might argue that they completed their emergence back around 2010 (and it has been one big relative bear market since then, and an absolute decade-long range-trade).
10. VC M&A > IPO
One potential explanation for uninspiring small cap stock performance has been the tendency for VC backed companies to get acquired vs go for IPO (meaning a lot of potential small cap companies disappear before they even make it to the public market… and probably end up owned by large cap listed companies).
And it makes sense for Venture Capitalists — it’s easier to build a capability/bolt-on acquisition-ready company than it is to build the next big standalone thing + cleaner, easier, faster exit …and ultimately VC only gets paid on the exit, so this helps them meet their investor demands, improve velocity of returns and recycling of capital.
https://www.chartstorm.info/p/weekly-s-and-p500-chartstorm-2-june-15e
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