Unless you’ve been living under a rock, or worse, are a ‘long-term investor’, you will know that opportunities in US equities have been bleak and the entire 2023 rally has been anemic in leadership.
The 2020 pandemic lockdowns paired with government free money handouts grifted from future taxpayers by means of printing fiat have led to an army of freshmen stock traders to be lured into the markets. Trading is easy, they thought – stocks jumping hundreds of percent, indices rallying without a break. What they haven’t fathomed is that markets don’t always go up – and even the fact that they do does not mean there’s great opportunity with low risk.
While the famous Nasdaq indices (e.g. the Composite or the Nasdaq-100) hammer on, a look under the hood shows that most of of the move is actually driven by a mere handful of stocks. The same goes for granddaddy S&P500.
If you remove the extreme overweight of these few large-cap tech companies in the indices, another picture appears – the dominance of sluggish industrials and other aged cyclicals that are largely listed on the NYSE. The Advance/Decline line, a summary of stocks trending up minus those trending down, shows that in fact NYSE-type issues have been leading, while the Nasdaq exchange A/D line has been in an abhorrent downtrend since its 2021 top.
A/D lines do not give you clairvoyance – but they are often a great and unbiased representation of what the market as a whole is doing. You need broad moves into Nasdaq-type issues to conclude that institutional money is in ‘risk-on’ mode, ready to shovel their capital into growth issues where serious money can be made for the speculator.
Of course, opportunities existed, but they were rather of limited nature. MSFT, AMD and NVDA are the most hyped names, and by now they are the market – but they are stale and old, and profit potential is limited. SMCI did a monstrous run in the wake of the AI wave – but you would have to have bought it on faith rather than risk/reward considerations, as the erratic and volatile trading character would have kicked you out after low-risk any entry point since 2021. What else truly worth venturing into was there?
The overall picture is symptomatic of a hostile market. Few opportunities, high volatility, and the lure of rallying indices courtesy of mutual funds rotating into large-cap AI stocks / cyclicals and a discounting of Fed rate cuts in 2024. Typically, markets sell off on a sell-the-news event once the latter actually happens. Does that mean the markets will continue to rally until then? No one knows, but we don’t have to know – we just have to look at what’s on the chart, and what I see is not too inviting.
Great opportunities right now lie in the Danish, Polish or Japanese stock markets, for those willing to think out of the box. Else, you’ll just have to buy ETFs/the Magnificent Seven and hope for the best …
