Investing Update: A July Rest Or Rally?
What I'm buying, selling & watching
For the month of June, the S&P 500 finished up 3.4%, Nasdaq up 4.5% and the Dow up 1.5%.
Market Recap
A July Rest Or Rally?
The calendar now flips to July. With such a run so far in 2024, what does July possibly hold for investors?
Over the past 20 years July has been the best month. Over the past 10 years it has been the second best month.
July starts on the heels of sentiment being overwhelmingly bullish. The percentage of bulls is back over 60%. Could this signal some frothiness?
The popular winners continue to receive inflows. We just saw the largest weekly inflow ever into US growth funds.
And the largest weekly flow ever into tech funds.
This has all helped boost household stock ownership to an all-time high.
With this much bullishness it should come as no surprise that the VIX has remained incredibly low. Average daily volatility is the lowest level in 7 years.
This has all resulted in the S&P 500 having one of the smoothest first halves to a year. The only bump in the road was a short 5% dip in April.
What can slow this market down? It’s a good question. It’s always something that nobody is expecting.
Right now there isn’t anything in the data or trends that’s jumping out. The road really has been this smooth. It’s almost scary how smooth it has been. Maybe that’s telling us something?
Here are two charts that stuck out to me indicating some possible warnings signs.
The first is from SentimenTrader, where they said the following.
Despite the S&P 500 hovering near record highs, the [Fear & Greed] model is dropping toward Fear level, which has usually only happened after a more significant price pullback.
My friend Grant Hawkridge who does an outstanding job keeping an eye on under the surface trends, continues to point out that the up trends are still continuing to fade.
Then I think what most stuck in my head this week is this from Barchart. Less than 50% of S&P 500 stocks are trading above their 100-day moving average. That comes despite the S&P 500 sitting at near record all-time highs.
This does indicate to me that the market may be nearing a point of exhaustion and a spot where we could see it to take a rest. The bull market thesis is still intact but it wouldn’t surprise me to see things take a rest before the next leg higher.
Hedge Funds Update
There has been some hedge fund information that has caught my eye.
The first is the amount of selling they have been doing. Over the last 3 months there has been a significant amount of selling. I first thought this could just be profit taking, but the flows have been net outflows for quite a stretch of time now.
Then there is this. Hedge funds exposure to cyclical versus defensive sectors is at an all-time low. A clear defensive sign. Makes the view into what hedge funds are doing as quite interesting.
These are the most popular hedge fund holdings after Q1 2024. There aren’t many surprises on this list. There is one notable absence, Tesla.
Analysts Sector Ratings
I found this chart rather interesting. It shows by sector, what analysts have with the most buy, hold and sell ratings. They are the most bullish communication services, energy and information technology. The most bearish are consumer staples, materials and financials.
US Manufacturing Construction Exploding
The US manufacturing construction has continued to explode higher. Since 2021 the pace of total manufacturing spend as well as the computer/electronic/electrical spend has been straight up. The onshoring here in the United States is in full swing. This is very bullish for the US economy.
The 60/40 Lives
To my surprise, the classic 60/40 portfolio is at a new all-time high just like stocks are. I was not aware that this run in stocks has also pushed the tradition 60/40 portfolio to new highs. Diversification and the 60/40 lives on.
Moves I’ve Made
Home Depot I added to my position in Home Depot this week at $342 a share after the overdone selloff of over 4% on Tuesday.
This was one of my stock picks for 2024. Investing Update: 3 Stocks For 2024. YTD it has basically been flat, while the S&P 500 is up 15%. Its underperformed and I think this is a trough level for housing related stocks.
Home Depot announced the acquisition of SRS Distribution which further deepens their commitment to the home professionals (contractors, landscapers, pool and roofers) space. I love this move for the pro space.
I also expect the first interest rate cuts to come in Q3. Once the Fed announces interest rate cuts this will be one of the biggest winners.
The cost of lumber has also been falling. It just took out the low of January 2023.
Lower lumber costs and the looming lower interest rates make me really like the outlook ahead for Home Depot. If you’re bullish on housing, then you’re bullish a company like Home Depot. I may not be done adding to this position.
Upcoming Earnings & Data
The Coffee Table ☕
Congratulations to Callie Cox on her new role as Chief Market Strategist at Ritholtz Wealth Management. She also wrote a debut post on her new blog Cautiously Optimistic. We’re too obsessed with cash. It’s such a good reminder on why you should be investing versus saving.
Jim Paulsen who writes
wrote an insightful post called Has S&P 500 concentration actually reduced stock market vulnerability? He looks at historic performances throughout this and past bull markets and points to how unique this bull market is with it not being bullish for most stocks.Tadas Viskanta over at Abnormal Returns had a really good post called Some reasons being online is so exhausting these days. It’s really a spot on and refreshing post about the internet now. I’ve been thinking the same thing the past few months. Nobody reads and curates more content than Tadas. He publishes Abnormal Returns everyday, which I read daily.
The cost of your avocado toast could be going up. Avocados have jumped to their highest prices in 2 years.
Source: Barchart
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