Green Book June 2024
Beware The First Rate Cut
Confidence in the economic soft-landing scenario probably peaked in early April. The past two months have brought a stream of disappointing data, dragging the Citi U.S. Economic Surprise Index below zero for the first time since early 2023. No problem… stock investors have shifted seamlessly into their “bad news is good news” mode.
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Featured Articles
Cracks Beneath The NASDAQ?
While the NASDAQ rebounded sharply from its mini-setback in April, daily 52-week new lows in the index eclipsed new highs several days in late May and early June. It’s rare to see that happen on days when the NASDAQ 100 itself closes at a 52-week high, yet that’s exactly what transpired on May 24th.
Technicals: A Little More Fractured
The stock market picture at the June 5th SPX high was not as cohesive as that of late March. Just two of our eight bellwethers—Dow Jones Transports and Dow Jones Utilities—had failed to confirm the new market high at the end of March. At the high on June 5th, however, the list of laggards expanded to include the Russell 2000, S&P 500 Cyclical Sector Composite, and the S&P 500 Equal Weighted Index.
Research Preview: Small Caps, Small Returns
Despite the overwhelming superiority of small cap returns, historically, during the winter months, the last three years have not followed the script. Three consecutive failures of this powerful seasonal influence make us curious if there are other market conditions that may be negatively influencing the smalls.
Golden Intrigues
Chinese investors have flocked to gold as traditional investments have massively disappointed. Global central banks are also buying gold amid heightened geopolitical tension. Both trends help explain why gold has defied the gravitational pull of a stronger dollar and higher real yields.
S&P 500 Earnings Waterfall 1Q24
Today’s eight largest firms produced an average gross margin of 65% over the last fiscal year, a 15-point gain since 1999—and pretax margins are truly amazing. The striking level of profitability at the top of the S&P 500 explains the top-heavy nature of the bull market, and at least partially justifies valuations.
On The Wings Of NVDA
Nvidia’s +27% return in May means that this chip company now has a similar market cap and index weight as Microsoft and Apple (NVDA was less than one-fifth the size of AAPL just 18 months ago). In May, Nvidia contributed a little over one-quarter of the S&P 500’s return. For the first five months of 2024, the firm’s 121% gain has subsidized one-third of the index’s YTD performance.
Low Correlations Haven’t Helped
With the Mag 7 driving S&P 500 returns on a daily basis, the other 593 stocks have become less correlated with the S&P 500’s day-to-day changes. Although dropping correlations are typically a good thing for active managers, we think this time is different.
Table of Contents
Stock Market
- Beware The First Rate Cut
- Prices They Can’t Resist!
- Monetary Trumps Fiscal
- Consumers Cracking?
- Small Cap Musings & Misgivings
- Do High Rates Help Homebuilders?
- Technicals: A Little More Fractured
- Short-Term Cracks To Watch…
- Long-Term Cracks To Ignore?
- Cracks Beneath The NASDAQ?
- How Pricey To Be “Passive?”
- Part-Time Investing In Small Caps
Of Special Interest
Macro Monitor
The Leuthold Refresh
Equity Strategies
Quant
Market Internals
- Better But Still Bad
- Small Cap vs Mid Cap vs Large Cap
- Growth vs Value vs Cyclicals
- On The Wings Of NVDA
Portfolios
Major Trend
Estimating the Downside
At Random
Cracks Beneath The NASDAQ?
While the NASDAQ rebounded sharply from its mini-setback in April, daily 52-week new lows in the index eclipsed new highs several days in late May and early June. It’s rare to see that happen on days when the NASDAQ 100 itself closes at a 52-week high, yet that’s exactly what transpired on May 24th.
Technicals: A Little More Fractured
The stock market picture at the June 5th SPX high was not as cohesive as that of late March. Just two of our eight bellwethers—Dow Jones Transports and Dow Jones Utilities—had failed to confirm the new market high at the end of March. At the high on June 5th, however, the list of laggards expanded to include the Russell 2000, S&P 500 Cyclical Sector Composite, and the S&P 500 Equal Weighted Index.
Research Preview: Small Caps, Small Returns
Despite the overwhelming superiority of small cap returns, historically, during the winter months, the last three years have not followed the script. Three consecutive failures of this powerful seasonal influence make us curious if there are other market conditions that may be negatively influencing the smalls.
Golden Intrigues
Chinese investors have flocked to gold as traditional investments have massively disappointed. Global central banks are also buying gold amid heightened geopolitical tension. Both trends help explain why gold has defied the gravitational pull of a stronger dollar and higher real yields.
S&P 500 Earnings Waterfall 1Q24
Today’s eight largest firms produced an average gross margin of 65% over the last fiscal year, a 15-point gain since 1999—and pretax margins are truly amazing. The striking level of profitability at the top of the S&P 500 explains the top-heavy nature of the bull market, and at least partially justifies valuations.
On The Wings Of NVDA
Nvidia’s +27% return in May means that this chip company now has a similar market cap and index weight as Microsoft and Apple (NVDA was less than one-fifth the size of AAPL just 18 months ago). In May, Nvidia contributed a little over one-quarter of the S&P 500’s return. For the first five months of 2024, the firm’s 121% gain has subsidized one-third of the index’s YTD performance.
Low Correlations Haven’t Helped
With the Mag 7 driving S&P 500 returns on a daily basis, the other 593 stocks have become less correlated with the S&P 500’s day-to-day changes. Although dropping correlations are typically a good thing for active managers, we think this time is different.
Stock Market
- Beware The First Rate Cut
- Prices They Can’t Resist!
- Monetary Trumps Fiscal
- Consumers Cracking?
- Small Cap Musings & Misgivings
- Do High Rates Help Homebuilders?
- Technicals: A Little More Fractured
- Short-Term Cracks To Watch…
- Long-Term Cracks To Ignore?
- Cracks Beneath The NASDAQ?
- How Pricey To Be “Passive?”
- Part-Time Investing In Small Caps
Of Special Interest
Macro Monitor
The Leuthold Refresh
Equity Strategies
Quant
Market Internals
- Better But Still Bad
- Small Cap vs Mid Cap vs Large Cap
- Growth vs Value vs Cyclicals
- On The Wings Of NVDA
Portfolios
Major Trend
Estimating the Downside
At Random
Perception for the Professional
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