Investing Update: Is Energy The New Leader?
What I'm buying, selling & watching
The S&P 500 finished down for the second week in a row. This is the first time since October that the S&P 500 finished down in back-to-back weeks.
A bit of a cooldown had to be expected as we’ve now seen 16 out of the past 20 weeks finish positive. We’ve had 17 new all-time closing highs already this year.
Since 1953, through the first 50 trading days of the year, there have only been three other years with more record closes than we’ve seen so far in 2024.
Now the surprising part to me is that only 24% of S&P 500 companies are outperforming the S&P 500 index over the pst year. That’s such a staggering low number. With data going back to 1994 that’s the lowest percentage on record.
That hasn’t matter as the overall market keeps powering higher. Much of it’s pushed by AI and Nvidia’s performance. This week marked the 10th straight positive week for Nvidia.
This bull market is now seeing broadening participation. It’s shifted from mostly technology to more sectors joining in as even energy and real estate have started to climb. It’s also seeing record levels of momentum and that can be hard to stop. But when it does, it can fall in a hurry.
Market Recap
Year To Date For It All
A chart that covers the YTD performance for a wide range of assets shows just how gigantic of a year cocoa has had, up over 57% so far. Natural gas has been the worst performer down over 19%.
Where Inflation Is And Where It Isn’t
It’s auto insurance by a mile. Nothing else is even close.
Flows Going Into Real Estate
A big change of late is what has transpired in CRE (commercial real estate) prices. They’ve started to rebound. After CRE was being called a “ticking time bomb” and the “next shoe to drop.” It’s looking like another all but certain forecast being made by seemingly everyone on Wall Street may also prove to be wrong.
This has resulted in investors flocking into real estate. It just experienced the largest inflow since January of 2022.
Flows from private clients of BofA show that REITs are far outpacing other areas right now.
Is Energy The New Leader?
If I asked you to guess what the top performing sector of 2024 has been, what would you say? Did you say energy? YTD energy is the leading sector.
Quietly under the radar has been what energy is doing. Crude has hit the highest level since October. The XLE has now been up 5 straight weeks. This week pushed it up to 8% YTD while the S&P 500 is up 7.8%.
Look at what oil has done vs the Nasdaq 100. As of the end of this week, oil is now up 13.1% while the Nasdaq is up 8.1%.
Since the October 2022 lows, no sector had been a worse performer than energy. That looks like it’s starting to change. Could energy become the new market leader? Right now it’s looking like it wants to.
What I’m Watching
This week I came across a great chart from The Compound. These are the largest Russell 1,000 companies sorted by market cap that are not currently in the S&P 500. These are the up and coming companies that are on the verge of joining the index.
I also ran a chart of all the stocks or ETFs that I own or that are on my watchlist, which are underperforming the S&P 500 7.8% YTD return. These are the 12 names that came up.
Of the names on these lists, I recently bought Alphabet and Tesla. In addition to those two, there are a lot of great names on these charts that I believe offer long term upside.
Upcoming Earnings & Data
The Coffee Table ☕
I really enjoyed Ben Carlson’s post called 20 Lessons From 20 Years of Managing Money. If you invest this is something you almost have to read. There is a lot of truth in what he writes. You’ll find yourself agreeing with much of it. The last one is so accurate that I had to share it below in case you don’t read the post.
20. Less is more. I’ve changed my mind on many investment-related topics over the years. But you will never convince me that complex is better than simple.
So many investors assume complicated implies sophisticated when simplicity is the true form of sophistication when it comes to investment success.
Greg Zuckerman had a wonderful piece in the WSJ. Jamie Dimon and Ray Dalio Warned of an Economic Disaster That Never Came. What Now? It’s such a good reminder that nobody knows the future no matter who you are or how convincing you sound.
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