November 27, 2023
Good morning,
I hope you had a delightful Thanksgiving break. As U.S. trading desks go back to full staffing this morning, markets look indifferent to start the week. Equities and bonds changed little overnight, continuing last week’s trend that saw narrow closing ranges on holiday induced low volume.
With only five trading weeks left for the year, portfolio managers would normally position their books for a traditional year end rally. But, with the S&P 500 Index up +10.2% from its late October lows, the idea that some of Santa’s Rally may have been pulled forward into November this year is worthy of consideration.
November’s advance has been led by the same mega-cap growth stocks and sectors that have led all year. Technology (+14.4%), Communication Services (+12.3%), and Consumer Discretionary (+12.3%) are the top performing sectors since the low, all handily topping the +10.2% gain of the S&P 500. Concentration is at a new record high. As mentioned in the spring, concentration is not unique to cap-weighted indexes – the Nifty 50 in the ‘70s, tech stocks in the late ‘90s, tech again during COVID’s aftermath in ’20-’21, and the present day AI’s magnificent 7. None of those previous events marked the beginning or the resumption of bull markets.
I believe the primary question for investors looking ahead into 2024 is will the U.S. economy enter or avoid a recession. And directly related to that; will developed economies win the war against inflation. These are not questions on investors’ minds at the beginning of bull markets.
I also believe that this rally has earned the benefit of the doubt and will likely run through the year-end finish line – perhaps with less vigor in December than in November, but intact.
Allow me to end on a technical note. Market topping processes (which might precede a possible 2024 recession) often entail marginal new highs in popular averages and a series of lower highs from breadth indicators. Fewer stocks, sub-industries, and global markets confirming U.S. cap-weighted benchmarks would imply the bull market’s days are numbered.
There is a lot to unpack right there. Please do call me with any questions. Otherwise, see you Thursday.
Be well,
Mike
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