Stock Talk - Breaking Down the S&P 500 Surge: Super Bulls and Swift Moves

Starting point is 00:00:00 Investors, most of our clients and investment content viewers know that for our YouTube segment, the Oak Harvest Investment Team likes to avoid market reporting in generic comments and provide value-added insights into what we see going on behind the scenes. With the magnitude of earnings calls over the last two weeks, this is one of those rare times. I'm going to revert to reporting. Investors, I thought the title, Super Bowls, move us swiftly to S&P 500, 5,000, was an appropriate title given this is being penned on Super Bowl Sunday in front of the big game. Here's a picture of the S&P 500 showing how far we've come the last three months from the lows in late October 2023,

Starting point is 00:00:38 when many in the financial business were touting coming stock market crashes or economic recessions. Take a look at this daily chart of the S&P 500. The Ocarbus Financial Group was quite positive when the market hit its lows in late October 2003, even going so far as calling the coming short-term bottom the night of our Thursday, October 26th, live stream with Troy Charles and myself. Back then, the cash S&P 500 was between 4105 and 4150, and our team was forecasting a strong fourth quarter and first quarter rally that could take the S&P 500 back to 5,000 conservatively in the first quarter of 2024 in 5150 to 5200, more aggressively in the first half of 2024.

Starting point is 00:01:22 Well, investors, whether we are good at this investment management gig or just plain lucky, That's what's transpired so far. Now, I must admit that I didn't anticipate the directness of the move off the October lows. By directness, I mean the lack of almost any discernible pullback on a percentage basis or time basis so far. While we messaged since the beginning of this move that we expected the rally to last about five months to mid to late March, that amount of time is quite the normal initial run off a major low, I didn't expect the S&P 500 to move this directly, directly as in without almost any percentage pullback. We've now moved almost 900 points in the cash S&P 500 with only noticeable squiggles down being the first few trading days of the year as investors took gains in the new year.

Starting point is 00:02:07 Additionally, the only noticeable stall came from the standpoint of four weeks between December option expiration and January option expiration. Take a look at the weekly chart of the S&P 500 over the last seven years. Investors, I hate the word unprecedented, largely because it's become commonplace and overused. However, in this case, I'm throwing it out there. Why? Because the S&P 500 has rallied and finished positive in 14 out of 15 of the last weeks. Not since the fourth quarter of 1971 into early 1972 as this happened. So yes, this winning streak is unprecedented in the last 52 years.

Starting point is 00:02:44 Even during the internet bubble run from the fourth quarter of 1998 through the first quarter of 2000, which our team has referenced many times in a positive fashion over the last 15 months, this kind of winning streak didn't happen. Stocks paused and treaded water or declined sharply and rapidly several times during that historic run. But so far, not this time. Investors take a look at the overlay of the current markets with the internet buildout rally from late 1999-2000 period.

Starting point is 00:03:10 This continues to be unbelievably tight, particularly when viewed through the lens of technology stocks, which now account for nearly 45% of the S&P 500 when you add communication services and Amazon are thrown in there. Now take a look at the updated overlay of the NASDAQ composite back then and now. As Yogi Berra said, it's deja vu all over again. However, this time around, with a heavier weighting in tech stocks, the S&P 500 has not had much of a pullback or a stall. The S&P 500 overlay has diverged over the last two weeks from the early 2000 pattern,

Starting point is 00:03:42 largely due to the 10% heavier weighting in technology stocks now than in the first quarter of 2000. How much are technology stocks and other high-growth names dragging up the overall S&P 500? Well, on Friday, February 9th, the first day the cash S&P 500 closed above 5,000, the Dow Jones 30 was down 0.15%. The S&P 500 was up about 0.57% and the NASDAQ composite was up about 1.5%. With the NASDAQ composite now accounting for almost 45% of the S&P 500, do you see the effect? Okay, investors, let's do the math together.

Starting point is 00:04:18 The NASDAQ composite was up 1.25% multiplied by about 45%. weight in the S&P 500 equals 0.5635. The overall S&P 500 gained 0.57 on Friday. Pretty much spot on the math calculation. So almost every other stock in the S&P 500 that wasn't a NASDAQ name was flat to down on the day or didn't contribute to the S&P 500. That's worsening breath behind the scenes. Behind the scenes, divergences continue to build. On Friday, February 9th, when the S&P 500 first closed above 5,000, the fewest stocks in the S&P 500 were above the 200-day moving average since December and the fewest above the 50-day moving average since way back in November. Those are all bad breath indicators. Here's J.C. Parrott's updated

Starting point is 00:05:05 breadth charts. Investors, this means that there's been a sharp fall off in the number of stocks with positive chart profiles versus the number with negative profiles. That's as the S&P 500 has made new all-time highs. This is called a negative divergence and throws up a yellow caution flag. Should this negative divergence make one bearish, on stocks and make them run for the exits? Not necessarily. If you're a longer term investor, as history says, there's more upside left for the first half of 2024. But shorter term traders should be looking increasingly to hedge positions or take some profits off the table while stocks are green, persuading, and selling when things are less super bullish and

Starting point is 00:05:44 we're swiftly turning red. Investors, thank you for taking the time to watch this week. I hope the team that you're rooting for one last Sunday, and I hope you forward this link to your friends and others who have an interest in financial markets. From the whole team here at Oak Harvest Financial Group, have a blessed week and a fantastic February. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created,

Starting point is 00:06:12 but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. strategies and ideas discussed may not be right for you and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss and past performance is not indicative of future results.

Stock Talk - Breaking Down the S&P 500 Surge: Super Bulls and Swift Moves

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