The S&P 500 gained 1.33% this week with Friday's close at 4,605.38. Friday's close is a new all-time high daily, weekly and monthly close for the index.
Consider this a birthday present from the market to Steve as he hit an all-time high 40 years old on Friday! The index has now recorded a new all-time high daily close 59 times thus far in 2021, only 19 away from the record of 77 set back in 1995. So, we're saying there's a chance.
For the second consecutive trading week, the S&P 500 recorded its weekly low on Monday and its weekly high on Friday. It's as if market participants can't wait to buy 'em all week long, especially into any weakness during Monday's session. The index has now increased four weeks in a row, ripping higher by 5.70% over that time period.
If last week's Update was centered on the S&P 500 retesting "resistance" in the ~4,550 price region, then it appears there's no "resistance" left in the ~4,550 price region. The S&P 500 closed every single day this week above our old all-time high daily close at 4,536.95. The index traded mostly sideways through Wednesday's close, but then climbed 0.98% on Thursday and added an additional 0.19% on Friday. In last week's Update we noted the S&P 500 was "overbought" across short-term time frames and thought that the index would consolidate between ~4,470-4,570 over the final week of October. Clearly the index had other ideas.
Sector dispersion was pronounced this week, and not in a good way, as under the surface the S&P 500 was mostly a one-trick pony.
The consumer discretionary sector, as measured by the SPDR Consumer Discretionary Select ETF (ticker symbol XLY), exploded higher by 4.36%. XLY's second largest holding is Tesla, Inc. (TSLA), which accounts for ~20% of XLY. Well, TSLA gained a whopping 22.46% this week, so it nearly accounted for all of XLY's weekly advance. By contrast, the Invesco S&P 500 Equal Weight Consumer Discretionary ETF (ticker symbol RCD) gained just 0.45% this week.
The technology sector gained 1.97% and health care added 1.63%, but no other sector gained more than 0.34% for the week. Eight of the eleven sectors within the S&P 500 underperformed the index as a whole, and six of the sectors actually declined on the week with the biggest loser being the financial sector, declining -0.89%. So, while the index itself climbed to new all-time highs this week, it was a very narrow advance that clearly lacked broad market participation. We'll certainly remember this *if* the S&P 500 doesn't actually step on the gas next.
We've often shared that we analyze the relative performance of the S&P 500 Equal Weight Index (SPXEW) compared to the traditional market capitalization weighted S&P 500 (SPX) as a proxy for the health of the "re-opening trade". We've been of the opinion that the "re-opening trade" needs to take the baton from the technology sector and show leadership to drive the S&P 500's next leg higher.
The market's reaction to the earnings of some of the largest constituents within the S&P 500 got off to a mixed start this week. Facebook declined -0.32% this week, but Microsoft (MSFT) gained 7.26% and Google (GOOGL) gained 7.62%. Apple declined in response to earnings but still gained 0.75% for the week. Similar story for Amazon too, which fell in response to earnings but still gained 1.11% for the week. Earnings season will continue with some giants reporting over the week ahead.
On the economic data front, this past week revealed that home prices have been soaring (click here), jobless claims have been plunging (click here), consumers kept spending (click here) and inflation kept inflating (click here). All combined, we believe the data says that the economy is nowhere near recession and this is supportive of higher prices for the S&P 500, if for no other reason than it perpetuates "TINA", an acronym for "there is no alternative".
S&P 500 Primary Trend - Up
The S&P 500 finished the month of October on Friday, gaining a whopping 6.91%.
Broadly speaking, this marks the last nine months as follows:
- 7-month winning streak (Feb-Aug)
- -4.76% monthly decline (Sept)
- 6.91% monthly advance (Oct)
Could we have asked for a better response to September's pullback than what October gave us? In the world of supply and demand, when a product goes on sale the expectation is for shoppers to step up and buy 'em. Therefore, the collective actions of participants dictate whether or not the product is deemed to be a quality product, or something they want to own. If they don't step up and buy 'em, even with a -10% or -20% discount, then clearly the market is voting that the product in question isn't a quality product. Alternatively, if they do step up and buy 'em then clearly that's a sign of eager demand into lower prices, which can only suggest that participants, collectively, believe the product in question is a quality product.
It's within this framework where market participants clearly deemed derivatives tied to the S&P 500, and the S&P 500's constituents, as quality products in the month of October. On October 4th the S&P 500 traded down to 4,278.94, its lowest price since July 20th. This marked a -5.87% decline from our all-time highs set in early September and left the S&P 500 with consecutive lower lows on the month chart, which is the first building block of a downtrend. Put simply, if market participants, collectively, didn't believe stocks were a "quality" product they wouldn't have stepped up and bought 'em. Clearly their actions proved otherwise, and stocks were deemed to be something they want to own.
The primary trend remains up, or bullish, and long-term investors remain best served with an equity overweight across their asset allocation and relying mostly on passive investing methodologies. The degree of equity overweight is obviously personal, or influenced by individual investor attributes. It's not until the primary trend can be labeled as down, or bearish, that long-term investors need to change what they're doing. Right now, it's time to abide by the old adage "If it ain't broke, don't fix it".
Our mantra all year has been to emphasize to our readers, week after week, that yes..."this can continue".
With the S&P 500 at all-time highs, we think we've sent the right message all year long. But how much longer can this continue? We obviously have no idea but there is some historical evidence to suggest that the next six months have a material upside bias.
Now, we completely understand that this can't continue forever.
It's as certain as death and taxes that the future includes the best of times and the worst of times. Since we're in the best of times now, with the S&P 500 working on its third consecutive year of double-digit returns, it's only natural to believe the worst of times are right on deck. However, it's just not that easy in the world of investing. Just because the sun has been shining for a long time doesn't mean a nasty storm is immediately on the horizon.
Ethereum Rips, Emerging Markets Still Stink, Uranium Double Top?
Some random happenings across the investable universe this past week:
Pundits have been clamoring about emerging market stocks for years, the idea being that valuations across the emerging markets are far more attractive than valuations in developed markets, especially here in the U.S. Well, unfortunately for those pundits our domestic stock market continues to absolutely trounce the emerging markets.
For some, but not us unfortunately, 2021 has been the year of uranium, specifically holders of North Shore Global Uranium Mining ETF (URNM). URNM is up a whopping 104.36% thus far in 2021, but is that a double top we see forming (red shaded region)? Perhaps a meaningful retracement for URNM is underway. After all, no pain, no gain....and URNM has produced a ton of gain, which often precedes a ton of pain.
Happy Sunday!
Steve & Rick
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