What's up with stocks?

Stocks took a big run up in the first half of the year, and now seem to be taking a big run down. So, what’s up with stocks? To answer that question, let’s get some context.

We have reminded you several times that toward the end of 2022 almost everyone was forecasting the bear market conditions of 2022 would extend into 2023. The only exceptions were Ed Yardeni, of Yardeni Research and Tom Lee, of FSInsight.com. We published our 2023 outlook newsletter on December 23, 2022, in which we said, “The most optimistic downside target we are seeing is 3600. The lowest target we’ve seen is from Dan Niles of the Satori Fund. He’s talking about 2400 as a downside target, by mid-year. We’ve seen any number of managers that think we’ll see downside targets in the 3000-3400 range, before the market starts to turn back up.” The key message was that most “pundits” thought that stock prices had more downside before they found a bottom and turned back up. Even so, with the exception of Yardeni, no one was calling for stocks to get to the levels they were in July 2023, when the S&P 500 peaked at 4607.

Here are the 2023 year-end price targets that we published in that newsletter. For reference, the S&P 500 closed last Friday at 4119.

We also know that the rally was built on the strength of “the magnificent 7”, including

Microsoft, Netflix, Amazon, Alphabet, Meta, Tesla, Apple. A few other stocks participated in the rally, like Nvidia and Service Now, but for the most part the rest of the S&P 500 went nowhere. That was a clue that the rally was potentially fragile. It had to broaden out to be sustainable. We needed to see upside in the prices of the other 490 stocks in the S&P 500. As of yet that hasn’t happened. John Murphy, of Stockcharts.com, reported on Friday, October 27th that 72% of stocks in the S&P 500 were trading below their 200 day moving average. Here’s what that looks like:

The financial press is focused on the fact that the S&P 500 is still up on the year. What most investors don’t realize is that it’s at the same level it was almost 32 months ago. You could have bought the S&P 500 for the same price in April 2021 that you can today. That has to feel disappointing for most investors. But we shouldn’t be surprised. Markets around the world are adjusting to a new interest rate regime. Markets haven’t experienced anything like this since the late 1970’s and early 1980’s.

Here is the chart:

All the best, 

Paul Krsek
CEO
5T Wealth, LLC
Main (707) 224-1340
Cell (707) 486-7333
Paul@5twealth.com

Disclosure and Disclaimer - Updated last on December 11, 2019 by Paul Krsek:

All return calculations for the S&P 500 were done using https://dqydj.com/sp-500-return-calculator/unless otherwise noted.

All charts used in this newsletter are from Stockcharts.com and annotated by 5T Wealth, LLC

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