Everybody loves Charts!
Every so often, I’ll check in to show some items which have been floating around in Wall Street circles and blogs. Longer term trends and assumptions in the markets and economy. Plus some extra details on what I’ve been eyeing as either underappreciated or overhyped. Best of all, I’ll try to link to some well put together explainers on the concepts.
**Everything as of 3/28/2023
Equity Resiliency
One of the most noteworthy news items this year is just how resilient the stock market has been despite interest rate hikes, banking failures and heightened layoff anxieties. In most other tough economic environments, we’d have seen a crash in equity prices by now.
Today: 15 months from All Time Highs , Down 17.75%
2008: 15 months from All Time Highs , Down 47.18%
2001: 15 months from All Time Highs , Down 25.43%
1974: 15 months from All Time Highs , Down 25.46%
So, what’s going on this time?
I’m short. Ill just say it. I think this market is going to “Tower of Terror” everyone with a 20% decline in under 60 days (like in 2018) to flush out some excess.
The market equivalent of getting one REALLY good sneeze in to clear your sinuses.
I just don’t know when it will start.
What’s Holding up Stocks?
Earnings Consensus
In a previous Thoughts on Markets, we talked about how the best rule of thumb for market valuation was simply EPS * Multiple. Well, stocks are staying where they are because the EPS side is just …not….budging.
Somehow general consensus is still about $200-$210 for NTM EPS. That is keeping us in the 3800 to 4200 range.
Morgan Stanley is forecasting this number will decline by 10-20% (but in fairness, they’ve been saying that for 6+ months now with no results)
Follow Me on Twitter @trader_dads for articles, charts and the occasional commentary.
The Blue Line is what actually happened so far.
The Dotted line is Morgan Stanley’s guess for the next 3-6 months.
The Tan line is general expectations.
We’re coming to an inflexion point soon.
Cap Weighted Indices
A second factor has been the weighting Mega Cap Technology companies have on the SPX. Just 5 companies can help prop up the entire index.
The recent regional banking crisis has triggered money managers — who are FORCED to have positions in the stock market — throw it all into “new secular Growth” specifically MAGMA. (META, AMZN, GOOGL, MSFT, AAPL) in hopes of “not losing”.
Combined, these 5 stocks make up about 25% of the index value and ALL the % Gains.
Viewed another way, The NASDAQ COMPOSITE (not just QQQ) is getting hollowed out as ALL the other companies fall. This is masked by the top 5 hanging in there so far.
So we’ll see what happens.
Tune In Next Week!
Same TraderDads Time, Same TraderDads Channel!
