Led by the ‘price momentum’ factor which had its best quarterly performance in 20 years, the S&P 500 exited March posting its 50th consecutive day at least one standard deviation above its 50-day moving average for only the 12th time during the past 100 years. For all the talk of tightened monetary policy, liquidity remains abundant and appears to be a key driver for stocks. The +10.16% YTD price return for the S&P500 can be split between the M7 (37% or 3.76% of the gain from this 29% share of the market) and the S&P 493 (63% or +6.4% from the remaining 71% of the S&P’s total market cap). This more recently balanced return profile is evident from the far right side of the relative strength graph below of the equal weighted SPX to the market weighted SPX. After reviewing the performance of our funds, this note will touch on inflation and the upcoming Presidential election.
Markets continued to rock and roll during the month of February. This was driven by liquidity, the belief that decent economic growth will continue and a confidence that the market knows better than the Fed about the future path for interest rates. In this note, we will review the performance of the funds and explain why we remain cautiously net long the markets.
During the first month of 2024, analogous to a homing pigeon returning to its roost, the M7 index reverted with a vengeance to the top of the charts, surprising investors who had assumed that market breadth would continue to improve for the 3rd consecutive month. While results from Alphabet Inc. (GOOG.US) and Microsoft Corp. (MSFT.US) account for the one-day reversal shown on the far-right of the one-month indexed price graph below, subsequent earnings from Meta Platforms Inc. (META.US) and Amazon.com Inc. (AMZN.US) more than enabled the domination of market-weighted vs. equal-weighted S&P 500 performance to continue. While we foresee improved market breadth this year, we do not believe small cap stocks (Russell 2000 in yellow) will regain their lustre.
The last 12 months marked a year during which most prognosticators were far off the mark with their forecasts for macro variables, yet still made money given the price gains experienced by pretty much everything financial, except for grain, base metal and energy commodities. The year started with broad agreement that 2022’s soaring interest rates could cause recessions in much of the world, inflation would abate (the question was to what degree), and that at 17.6X forward earnings, the S&P 500 was not cheap.