The S&P 493 Are Winning Again

Don't miss Greg Diamond's latest take... The 'surprise' to prepare for... Does the election matter?... The Super Bowl of earnings is tomorrow... New market leadership already... What's going on below the surface... Boring and defensive stocks are winning...

In just a few hours...

Our friend and colleague, Ten Stock Trader editor Greg Diamond, is debuting a new free presentation that you won't want to miss. As we've been explaining lately, Greg is expecting the next few months to be some of the more "volatile" we've seen in a while in the market.

You and I (Corey McLaughlin) may have our reasons to believe the same – a weakening jobs market, an uncertain national political picture, or whatever it may be. But I can tell you that Greg doesn't necessarily care about the specific "trigger" if there is one (or two).

Greg puts more stock in history, cycles, dates, and "time," as he describes it, in his brand of technical analysis. He believes strongly in the idea that history does tend to repeat itself, even if some of the details may differ.

This kind of thing might sound like voodoo to you...

Maybe the fundamentals and valuation of a company like Nvidia (NVDA) mean more to you when making investment decisions. Or maybe it's how the economy is doing... or what you see in your town or city... or whatever else.

If you've been with us for a while, you likely have your own strategies that work for you. I'm not trying to tell you to go changing.

I'm just here today to say that if you haven't heard about Greg's "technical analysis" strategy before, you ought to hear him out. Tonight, at 8 p.m. Eastern time, is a perfect opportunity – given what Greg is expecting over the next few weeks and months.

A requirement for trading...

As he wrote to his Ten Stock Trader subscribers earlier this week, the upcoming presidential election does matter... But a few things will likely matter more – to your portfolio, at least – in this same period (and anytime, really). As Greg wrote...

Now, it's easy to let your emotions run wild... Many folks expect good or bad outcomes depending on their political party's wins or losses. But technical trading doesn't care about politics.

As I often say, trading requires us to control our emotions and focus on our trading strategy... especially around big elections.

For the past few weeks, I've been stressing that volatility will increase in both directions... starting this week.

I won't predict what's going to happen (or not happen) in the political arena. Instead, I want to outline what I'm seeing based on the two major components of our technical strategy... time and price.

Maybe you're not interested in putting your money directly into short-term trading and the brand of analysis Greg is known for, which he practiced on Wall Street before joining Stansberry Research. But we've also heard from plenty of folks who have used his analysis to help with their long-term investing approach.

For instance, Greg nailed the market "top" and "bottom" in 2022... warned of a big turning point for stocks in early 2020... and helped guide subscribers through the uncertainties early in the pandemic. Now, he says that "volatility" is coming...

Tune in to his presentation to hear more.

One more note: Of course, Greg's existing subscribers and Stansberry Alliance members have access to all his research already, but you're also more than welcome to check out the presentation.

It was another 'mixed' day today...

The major U.S. indexes were split. The Dow Jones Industrial Average, which actually made a new all-time closing high yesterday in about the least impressive way possible with a tiny gain, was nearly flat.

The benchmark S&P 500 Index finished 0.2% higher, the tech-heavy Nasdaq Composite Index was up 0.4%, while the small-cap Russell 2000 Index was almost 1% lower. The CBOE Volatility Index ("VIX") was around 16, close to its longer-term average.

The Super Bowl of quarterly earnings reports...

Another widely followed report will hit Wall Street after tomorrow's close. It's Nvidia's latest quarterly earnings. Investors will be looking for signs or confirmation of the pace of the company's growth, as in whether it's keeping up or slowing down.

Last quarter, Nvidia's revenue was up 262% from a year earlier. The quarter before that, revenue was 265% higher than the same period a year prior. The company and Wall Street analysts all predict sales to, once again, more than double year over year. Will the AI darling beat those expectations, or will the results disappoint? We shall see.

Nvidia is the last of the "Magnificent Seven" companies to report this quarter.

The first six have made for a picture of "mixed" results, with Tesla (TSLA) missing Wall Street analysts' consensus earnings estimates and cutting its growth outlook. The others didn't produce too many surprises.

However, Nvidia's results tomorrow could add to, or possibly subtract from, a recent trend in the market...

As should come as no surprise to many readers after warnings we've made about these businesses' exorbitant valuations this year, the "magnificent" stocks have been – finally – underperforming the other S&P 493 lately. Look past the headliners...

The S&P 493 are winning again...

We can track the performance of the "Mag 7" using the Roundhill Magnificent Seven Fund (MAGS) that tracks Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta Platforms (META), Nvidia, and Tesla and equally weights them in an exchange-traded fund.

Since July 10, MAGS is down around 10%. The S&P 500 is just about even, meaning the S&P 493 are outperforming the popular mega-cap tech stocks, which are heavily weighted and count for about 30% of the U.S. benchmark index.

Another notable indicator of market behavior right now is that the equal-weight S&P 500 index just closed at a new all-time high as recently as two trading days ago. This could be a change in "leadership," or more signs of "rotation," a good sign in a bull market.

We're also seeing this play out below the surface. As I wrote early last week, certain "defensive" or "boring" sectors, like health care and consumer staples, were already trading at new all-time highs. This continues to be the case a week later.

(Side note: Is it funny that the idea of "price gouging" legislation or regulation – suggested by the Democratic nominee for president, Kamala Harris – hasn't hurt the consumer staples sector of the S&P 500, of which food and grocery companies are a part, at all?)

The Consumer Staples Select Sector SPDR Fund (XLP) is up 5% in a month, also outperforming the Magnificent Seven.

Here's another 'boring' recent winner...

Our colleague and DailyWealth Trader editor Chris Igou wrote an analysis today of the Materials Select Sector SPDR Fund (XLB), which tracks this major S&P 500 sector.

The materials sector includes companies that "do everything from making the chemicals in paint to getting copper out of the ground," as Chris put it. "If we use the material to run society, you will likely find some trace of it in this fund."

Lately, as Chris sees it, XLB has traded above a key level of "resistance" (a price that proved to be a cap previously). As he explained to subscribers today...

In 2021 and 2022, XLB hit a ceiling around $90 a share. It tried to break out above that level four times over the course of a year. Then, that resistance led to lower prices in XLB into late 2022.

XLB has since made up all the ground it lost over that span. And where it found "resistance" at the $90 level back then, it's finding "support" today.

In the chart below, you can see XLB punching through that $90 barrier in early 2024. And anytime it dropped to or slightly below that level, it turned higher...

This change from resistance to support is a great sign that XLB is done trading in that sideways range.

It's easy to see why investors might be wary of buying in now. XLB is up 43% since it bottomed in 2022. That's a massive run in roughly two years. But just because the sector is up doesn't mean the rally has to end.

Chris then shared history of prior action like this and how it portended more gains. We can't share all those details here out of fairness to his paying subscribers, but Alliance members and DailyWealth Trader subscribers can find everything here.

As for the 'why' about all this...

As I mentioned to start, technical traders don't necessarily need a reason for price action. They see it for what it is... And I don't speak for our editors and analysts, as much as I might seem like it since I'm writing to you here every day.

Be sure to follow our team for all of their views, our flagship Stansberry's Investment Advisory for starters, and our Portfolio Solutions products if you're wondering about how to piece it all together.

Me? I personally enjoy marrying observations, trends, history, and a macroeconomic outlook with ongoing price action...

Here's my take: It's no secret that the "Mag 7" have been on an incredible run since October 2022, which was the start of the current bull market. Now, it seems the "rest" – many of which haven't done all that great in the past few years – are catching up and outperforming.

Does that mean all is well with the economy? I'm not so sure, but Mr. Market doesn't care what I think. We may have concerns, but it is interesting that an apparent changing "leadership" in the U.S. stock market is coinciding with expectations of lower interest rates ahead and into 2025.

The Federal Reserve's "juice" may be working already. But as I cautioned yesterday, that also doesn't mean the catalyst will last forever, especially if the economy sees "unexpected weakening" in the months ahead.

No matter what: Own shares of high-quality companies and other inflation hedges.

New 52-week highs (as of 8/26/24): Automatic Data Processing (ADP), Altius Minerals (ALS.TO), Berkshire Hathaway (BRK-B), CBOE Global Markets (CBOE), Colgate-Palmolive (CL), Compass (COMP), Costco Wholesale (COST), Cintas (CTAS), Fidelity National Financial (FNF), SPDR Gold Shares (GLD), Intercontinental Exchange (ICE), Nuveen Preferred & Income Opportunities Fund (JPC), JPMorgan Chase (JPM), Kellanova (K), Coca-Cola (KO), Medtronic (MDT), MainStay CBRE Global Infrastructure Megatrends Term Fund (MEGI), Altria (MO), Newmont (NEM), Northrop Grumman (NOC), Novartis (NVS), Omega Healthcare Investors (OHI), Pembina Pipeline (PBA), Invesco High Yield Equity Dividend Achievers Fund (PEY), Sprott Physical Gold Trust (PHYS), Planet Fitness (PLNT), PayPal (PYPL), Regeneron Pharmaceuticals (REGN), Royal Gold (RGLD), Construction Partners (ROAD), Sprouts Farmers Market (SFM), Sherwin-Williams (SHW), S&P Global (SPGI), SPDR Portfolio S&P 500 Value Fund (SPYV), Torex Gold Resources (TORXF), Texas Pacific Land (TPL), ProShares Ultra Gold (UGL), ProShares Ultra Financials (UYG), Viper Energy (VNOM), Vanguard Short-Term Inflation-Protected Securities (VTIP), Wheaton Precious Metals (WPM), Consumer Staples Select Sector SPDR Fund (XLP), and Utilities Select Sector SPDR Fund (XLU).

In today's mailbag, another thought on the Federal Reserve, which we discussed yesterday... and more about... Scooby-Doo? Well, and the Fed and economic data, in a way... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Many pundits portray the Federal Reserve board members as good-intentioned folks that just somehow get their policy wrong, or they are inadvertently late on decision-making. But what if we are the ones getting it wrong? Do we mistakenly project our values upon them?

"We assume that the Board and its staff are there for the best interests of the American people because that is what we want to believe. [But] wargame their past decisions as if they are the adversary and their objective is to benefit a small group of entities (select banks, corporations, private equity firms, hedge funds, etc.) while placating to the masses just enough to keep them docile then the rules to their game become a bit clearer.

"'The financial markets are SO complex and fragile that the sheep need us 'experts' to steer this ship through the constant storm!" Well, thank goodness for us (the sheep) that we are blessed to have these 'experts' keep us safe! (Yes, that is meant to be read with heavy sarcasm)..." – Subscriber J.W.

Corey McLaughlin comment: Short answer to your second question: Yes. At least I am guilty of this, probably too much. More to come on this subject soon.

"Likewise Corey, I thought you were referencing Scooby-Doo in your article. I thought it was very insightful and funny, but there might be a minimum age to understand what you were saying. It was hilarious." – Subscriber Dennis M.

McLaughlin comment: Ha, thanks. But let me be clear on one thing: I was referring to Scooby-Doo with the "ruh-roh" reaction, as in "uh-oh" about bad economic data. However, we were not – at least intentionally – thinking of the Fed or government as "a group of Scooby-Doo's," as Larry N. put it in yesterday's mailbag. (That's not to say it isn't true, though...)

"Re Larry N.'s comment, does that mean the members of the Fed will be happy if we feed them all Scooby Snacks?" – Subscriber Sherwin R.

McLaughlin comment: You guys are great. Thank you. My editors might be counting the Scooby-Doo references now, though.

Editor comment: Zoinks!

All the best,

Corey McLaughlin
Baltimore, Maryland
August 27, 2024