Investing Update: The Bull Is Ready To Roar
What I'm buying, selling & watching
On Wednesday of this week all three major indices (Dow, S&P 500 & Nasdaq) closed at new all-time highs.
The week ended with the Dow closing above the 40,000 milestone for the first time ever. It’s been quite a ride since the Dow closed below 20,000 in March 2020.
The S&P 500 has also continued its hot streak closing the week just below the new all-time high it set earlier this week.
Over 80% of S&P 500 stocks are now trading above their 200-day moving average. It’s starting to close in on the highest level since September 2021.
Stocks continue to be in an uptrend. Breath is expanding. Financials, materials and industrials are broadening sector participation strength. Inflation has stopped rising. The 10-year is falling. The rate hikes have stopped and the Fed has indicated their next move is likely to be a cut, not a rate hike. This has led to very positive sentiment among investors. Can you blame them? It should be no surprise that we’re breaking new all-time highs each week.
Market Recap
The Inflation Fight Continues
Inflation went down slightly in April 3.4% from March 3.5%. Rent and gas are now starting to be the drivers of inflation. For April they accounted for over 70% of the April inflation.
Even thought inflation has stopped going up and fallen from the peak, it still remains too high. I believe in time it will come down but it won’t be soon.
This is a good chart that shows that inflation has now been above 3% for 37 consecutive months. It’s looking like this period could challenge the last high period of inflation from the 1980s.
Here is my favorite chart on inflation. This shows where inflation is and isn’t. You can see that the 12-month change in auto insurance is still far and away the biggest gainer.
Allocation & Positioning
With the stock market at all-time highs it shouldn’t come as a surprise that investor allocation to stocks is at an all-time high. The allocation to debt has fallen significantly. Cash has actually remained quite stable.
If we look at May investor positioning you can see that there is rotation continuing into cash, staples, bonds and equities. There has been a continued rotation out of the unloved REITs sector. Which i far outpacing industrials, Eurozone and utilities.
Real Estate Remains Unloved
It seems that real estate still can’t seem to catch a bid. I’m a bit surprised that this sector is still so unloved. Work from home has made an impact on the office space demand. We hear plenty about that. But that has to be priced in. Which makes me wonder if the other real estate sectors make this sector a bit intriguing.
I mean if investor allocation to real estate is at the lowest level in 15 years there is already a lot priced in.
If we look at the real estate sector relative to the S&P 500, it continues to sit at all-time lows.
The Bull Is Ready To Roar
We’ve reached a point where the stock market must go higher. Investors can’t be underweight with the market at all-time highs, the Fed stopping the raising of rates and looking next to cut rates. Plus we’re not in or near a recession. In fact, earnings and the economy continues to be as strong as ever.
As Grant Hawkridge’s loaded chart below (I love this!) shows us that the strength continues. The data proves that. Don’t fight the data! This illustrates the continued strength very clearly and gives the look of a bull market ready to roar on longer.
Also look at this mix of stocks hitting new highs this week. This is a very bullish signal.
JP Morgan
Citigroup
Bank of America
Alphabet
Costco
Chubb
Walmart
Goldman Sachs
P&G
3M
Freeport-McMoRan
Bull markets also last longer than you think, as Ryan Detrick points out. This is still technically a baby bull market so far as it’s only 19 months old. The previous 12 bull markets lasted more than 5 years on average.
As Jurrien Timmer shows this bull market which is up 49% from the October 2022 low, has just been an average bull market by historical standards so far.
We just had the most bullish global Fund Manager Survey since November 2021.
This has resulted in the Fund Manager Survey showing the most overweight stocks since January 2022.
Looking towards the consumer? Right now you can’t worry about them. They continue to be in great shape. Trust me because I continually monitor it. There is nothing to see here. This consumer finance dashboard does a nice job providing an overview where some finance metrics are at.
If you’ve been watching the 10-year you’ve noticed it has dropped. I’m keeping a close eye on the 4.3% level. That has provided support. If it breaks 4.3%, I agree with BofA that I think you could see it fall below 4%. If that happens, we’re going to be talking about more all-time highs.
But I don’t want to invest at all-time highs. I hear that a lot. Yes actually you do! The most bullish thing the market can do is go up. Investing at all-time highs is a good thing. I’m going to bring this chart back out just to prove that point.
Upcoming Earnings & Data
The Coffee Table ☕
Rubin Miller wrote a really good piece on how taxes matter but that you shouldn’t organize your life around paying less of them. 6 Months and 1 Day I loved this line “Taxes are a thing. But they aren't the only thing.”
Ben Carlson wrote an entertaining and funny post called Translating Wall Street Jargon. He lists many lines from the world of investing that we hear all the time and a translation for what it means. Some of these made me laugh out loud.
This week I listened to the podcast, Animal Spirits: When Will Houses Become Affordable Again? I was surprised at the 24 minute mark to hear my name get a shoutout and then a funny play on my last name. Michael and Ben are worth the listen every week. Be sure to check them out if you haven’t.
Axios’s Felix Salmon had a good article showing that people expect to retire earlier in 1 big thing: The retire-early economy. Only 46% of workers who are under age 62 expect to work past that age. He made some good points on what has been changing that.
Source: Axios
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