FTDS - So Far The Stock Market Bottom For 2023 Still Holds
2023-11-13 21:30:00 ET
Summary
- We have entered the seasonally strongest part of the year – as November and December historically tend to be up months, when the stock market acts a lot better.
- The S&P 500 Index and its more volatile cousin, the Nasdaq 100, are both now overbought but refuse to pull back with every dip being bought, so far.
- We have CPI inflation numbers coming in today and PPI tomorrow, so there is plenty of drama that can hit the tape.
We have entered the seasonally strongest part of the year – as November and December historically tend to be up months, when the stock market acts a lot better. The S&P 500 Index and its more volatile cousin, the Nasdaq 100, are both now overbought but refuse to pull back with every dip being bought, so far.
At some point, there will be a tag of the 10- or 20-day moving averages, or an escalation of hostilities in Israel (which can happen at any time) or Jerome Powell intervening, like he did in late 2018, when we had a good economy with a terrible stock market, since the Fed clearly over-tightened monetary policy.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We have CPI inflation numbers coming in today and PPI tomorrow, so there is plenty of drama that can hit the tape. Since investors are in dip-buying mode, they will probably buy any selloff short of a horrific negative surprise and are likely to keep chasing the stock indexes higher if the inflation reports are good.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We have seen a sharp decline in inflation in 2023, and I think this decline will continue in 2024. For the most part, the Fed is looking at lagged data. Owners’ equivalent rent and other heavily weighted inflation components do not accurately represent the inflation rate, at the moment, which is probably running close to 2% vs. the official core rate, near 4%.
Basically, I think the Fed is over-tightening monetary policy and in the same way it was overstimulating the economy in 2021, when the inflation rate was accelerating. The Fed is making exactly the same mistake on the other side, overdoing it on both sides of the problem.
If we do not get a recession in 2024, which I believe is possible, Jerome Powell will be the luckiest Fed Chairman in the history of the Federal Reserve.
Small Caps: The Fly in the Ointment
One stock benchmark that is not acting like the tech-heavy indexes is the small-cap Russell 2000 Index. While it is not that big a part of the value of the total U.S. stock market – only about 8% or so – it does say a lot about the economy. For example, the S&P 500 is about 80% of the value of all U.S. stocks.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The big divergence in 2023 between the Russell 2000 and the S&P 500 started around the time Silicon Valley Bank failed in March. I would feel a lot better when that negative divergence ends, as it does not look good now. The Russell 2000 is down 22% since the start of 2022 vs. 7.36% for the S&P 500 (above).
Keep an eye on small caps, as they may be the canary in the coal mine for the stock market in 2024.
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.
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So Far, The Stock Market Bottom For 2023 Still Holds