22 Jan 22nd January 2024
Weekly Index Movement
| S&P500 | +1.2% |
| Nasdaq | +2.9% |
| Aussie All Ords | -1.0% |
After the last two months of 2023 where other stocks besides the ‘magnificent seven’ not only managed to rally but even outperform the major indices, 2024 has been a return to normalcy of sorts where the megacaps are once again in pole position, and, on Friday, pushed the S&P 500 to a new all-time high.
By comparison, Small caps, as proxied by the Russell 2000 were down over 4% and microcaps were down even more with a decline of over 5% whilst the FANG+ Index, which is comprised of mega-cap ‘tech like’ stocks has surged over 5.8%.
Looking more broadly, performance so far this year has been a continuation of the trend that has been in place for the last two years (and even longer for that matter). While the major indices like the S&P 500 and Nasdaq have seen modest gains or losses during that span, Megacap tech (FANG+) has been the only game in town with a gain of over 21% while small and micro-cap stocks are still sharply lower.
After a little over two years, the S&P 500 finally took out its record closing high from early January 2022 on Friday. At 512 trading days, the streak that just ended was the longest since the 1,375 trading days coming out of the Financial Crisis and the seventh longest streak without a record high on record.
Historically, once the S&P 500 reclaimed its former high, there has been pent up demand for stocks going forward. Over the following one, three, six, and twelve months, the S&P 500’s average and median performance was better than the long-term average for all periods in the index’s history. Returns were the most positive three and twelve months later with gains 14 out of 15 times and median returns of 2.24% and 13.30%, respectively.
On a day when the S&P 500 hit s record high, it seems strange to say that performance so far this year has been mixed, but that’s exactly what it has been. On a YTD basis, the S&P 500, Dow, and Nasdaq 100 are all up, but mid and small-caps are down sharply. While most of these indices have seen similar gains since last October’s low, this year’s performance disparity looks like the disparity that has been in place since the bull market started in October 2022.
At the sector level, there’s been a lot of disparity no matter what time frame you look at. Since the bull market started in October 2022, both Energy and Utilities have seen gains of less than 5% while Consumer Staples and Health Care are the only other sectors not up 20% or more. Year to date, there’s already an eight-percentage point performance spread between the best (Technology) and worst performing sector (Energy).
If we take a look at what has happened at the sector level since January 2022 (the previous high) we see that most sectors are still lower.
The rising tide to new highs has lifted very few boats. Energy was in the doldrums two years ago so is understandable why it bounced, but the continued dominance of Tech and Industrials is a story that does not go away. And it is a story you should be listening to.
Drilling down on Big Tech further in this same time frame
In early 2022, no one could have predicted that ChatGPT would take the world by storm, but it did, and we can thank this novel software for giving us the opportunities to profit this year, for this is where the gains will be coming from and I intend to try and uncover specific opportunities for you.
For now, make sure you own Microsoft, Apple and Alphabet. Throw in a chip maker, NVidia or AMD and you have the basis of a very nice portfolio.
I’m going to spend a lot of my time researching the smaller players and who will gain, but this is where we will all want to be in 2024 if you want growth. Nothing else will come close.
Next Week
Earnings season has started, but so far we have only had the banks. The quirky nature of bank financial reporting makes it hard to read anything into this so far, but revenue beats have been on the low side. This is something to pay attention to as we get into the meat of earnings season.
With most financial institutions done reporting, tech results will take center stage with Netflix (NFLX) earnings on Tuesday followed by Tesla (TSLA) on Wednesday. Reports from Johnson and Johnson (JNJ), United Airlines (UAL), Verizon (VZ) and AT&T (ATT) also highlight one of the busiest weeks of quarterly reports on Wall Street.
In economic data, the first reading of economic growth for the fourth quarter is expected on Thursday. Meanwhile, the latest release of the Personal Consumer Expenditures (PCE) Index, the Fed’s preferred inflation gauge, is slated for Friday.
Warning
Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.