All Aboard!

Nov 13, 2023

By Pete Biebel, Senior Investment Strategist
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In recent weeks, there has been a significant increase in bullishness among investors. The percentage of investors who said they are bullish, as measured by the American Association of Individual Investors, has spiked from its lowest level in five months in late October to its highest level in three months last week. Market performance since late October has been just the ticket to make investors want to hop onboard.

Two weeks ago, coming off the recent washout lows, the stock market rallied like a run-away train. It was the best week of the year for many of the market averages. A big rally in bonds, which saw the yield on 10-year U.S. Treasuries plunge from near 5% to 4.5%, was the primary locomotive that drove stock prices higher. But that rally nearly came off the rails last week. Following a sluggish start to the week, a disappointing auction of new long-term Treasury bonds triggered a spike in interest rates, which temporarily derailed the rally. It was the first down day for the major averages in a week-and-a-half.

Then, on Friday, a big rally in Technology sector stocks, and semiconductor companies in particular, got the market back on the right track. One popular chip stock index gained more than 6% that day. The S&P Information Technology sector led all other U.S. equity sectors for that session and for the week. It engineered a 4.57% gain that day, netting the sector a 4.52% gain for the week. The Communication Services sector was up 1.35% for the week and was the only other sector to gain more than 1%. Five of the 11 sectors failed to make the grade and posted net losses for the week. The Energy sector was the caboose, losing 3.77%.

With Tech and Communication Services leading, the NASDAQ Composite Index (COMP) was on the right side of the tracks. COMP netted a 2.37% gain for the week while the S&P 500 Index (SPX) advanced just 1.31%. But it was far from a one-track market. Small-cap stocks were asleep at the switch. The Russell 2000 Index (RUT), which posted a 7.6% gain in the previous week (and got back to even for the year), lost a bit more than 3% for the week.

The fact that RUT got railroaded last week explains a couple things. First, the ratio of advancing issues to decliners on the New York Stock Exchange was a lopsided 3.7 to 1 in the previous week with the big rally. Last week, declining issues outnumbered advancers by more than 2 to 1. And that was in a week that brought gains for SPX and COMP. Second, that light at the end of the tunnel that many investors saw following the previous week’s big rally might be an oncoming train. One of the phonier aspects of that big rally is that the largest gains were in the weakest groups (Real Estate, Utilities and Financials, along with small caps). Their gains might have indicated broadening participation if those groups were able to continue to chug along. Sadly, most of them backtracked last week. So, what might have looked like a golden spike was more likely just a flash in the pan.

The fact that so many sectors and so many stocks were unable to get any further down the tracks – following the previous week’s gravy train rally, – on its own is worrisome. But that fact combined with the recent surge in bullishness, which is a fairly reliable contrary indicator, suggests that investors should not be sidetracked by the market gains of the past weeks. Many market participants might feel that the year-end rally has left the station, but if there is additional lack of follow-through over the next week or two, then there will likely be better buying opportunities ahead.

Earnings season is coming to the end of the line. The reports this week will feature several of the leading retailers. The good news on this earnings season is that the results have been marginally better than expected. The largest increases in year-over-year earnings per share have been in the Consumer Discretionary and Communication Services sectors. The largest decreases have been in Healthcare and Energy. The third quarter of 2023 will be the first to register year-over-year earnings growth since the third quarter of 2022. The bad news is that the forward guidance that companies have provided with their earnings has been disappointing. Estimates for fourth-quarter earnings have already been ratcheted back. By some estimates, fourth-quarter estimates have fallen by 4%. That’s by far the largest impact on future quarter estimates this year. In the “not such good news” column, the announcements have generated fewer and smaller positive reactions to good news, and more frequent and more significant sell-offs in stocks of any companies that hinted at poorer performance. One theme that has been more prevalent in this quarter’s reports than in the previous two is concern over the health of consumers.

SPX ended last week near 4415, a bit above its October rebound high and at its highest level since mid-September. We should find out early this week whether the indices can muster much follow-through upside based on the momentum generated over the past two weeks. If additional upside is in the cards, SPX is going to encounter resistance in the 4450 to 4500 range. It’s unlikely to move beyond that zone anytime soon. The first significant level on the downside is near 4340, roughly the level of last Thursday’s low and the 50-day moving average. Falling below that level would likely trigger a continuation move into the mid-4200s and the 200-day moving average.

This week’s calendar of economic reports features two of this year’s most widely watched data sets: The Consumer Price Index (CPI) data on Tuesday and the Producer Price Index (PPI) numbers on Wednesday. The importance of these reports is not so much in the numbers themselves but in the market’s reaction to them. Watch to see if any pre-opening moves in the indices following the release of the data is sustained through the trading session.

Beyond the usual news, this week will hopefully bring some news regarding congressional action on the looming debt ceiling. With a new House Speaker in place, the odds are that the result will be another kick-the-can-down-the-road action to stave off a government shutdown. And while a shutdown is much less likely, if it were to occur, it could have significant repercussions in the markets.


Economic Calendar (11/13/23 – 11/17/23)



Monday 11/13/2023 No Reports Scheduled
Tuesday 11/14/2023 NFIB Small Business Optimism Index, October 90.8 90.5
Consumer Price Index, October, M/M +0.4% +0.1%
CPI ex-Food & Energy, October, M/M +0.3% +0.3%
CPI ex-Food & Energy, October, Y/Y +3.7% +3.3%
Wednesday 11/15/2023 Empire State Manufacturing Index, November -4.6 -3.0
Producer Price Index, October, M/M +0.5% +0.1%
PPI ex-Food & Energy, October, M/M +0.3% +0.3%
PPI ex-Food & Energy, October, Y/Y +2.7%
Retail Sales, October, M/M +0.7% -0.3%
Retail Sales ex-Vehicles & Gas, October, M/M +0.6% +0.2%
Thursday 11/16/2023 Initial Jobless Claims 217K 222K
Philadelphia Fed Manufacturing Index, November -9.0 -11.0
Import Prices, October, M/M +0.1% -0.3%
Export Prices, October, M/M +0.7% -0.2%
Industrial Production, October, M/M +0.3% -0.3%
Friday 11/17/2023 Housing Starts, October, SAAR 1.358mm 1.350mm
Building Permits, October, SAAR 1.473mm 1.463mm


Links to previously published commentaries can be found at Investment Insights/Weekly Market Commentary/Market