Large Cap U.S. Stocks Have Big Gains, but Market Divergences Prevail


By the Curmudgeon

A Tale of Two Markets:

As we stated in this recent Curmugeon blog post, U.S. stocks have been in a bull market since October 2022, while U.S. bonds have been in a major bear market since June 2020  Even counting the 9 ½ month 2022 bear market, stocks have posted double digit returns since the Fed started raising rates in March 16, 2022 (with NO rate cuts since then). 

Since March 16, 2022 when the Fed first started to raise rates from 0 to 0.25%, the total price appreciation (not including dividends) has been: Dow Jones Industrials +17%; S&P 500 +24%; NASDAQ +27%, and NASDAQ 100 (QQQ ETF) +38.17% (largely due to NVIDIA).

Meanwhile, the 20+ year U.S. Bond ETF (TLT) has lost approximately 30% of its value over that same 27 month time period with almost all U.S. interest rates rising from below 2.5% to at or above 4.4%.  Also, the U.S. 30-year T-bond yield closed at 2.459% on March 16, 2022, vs 4.548% (2.089% higher) on Friday, June 7, 2024. 

Bond investors have realized huge real and/or paper losses since Fed rate hikes began. The Curmudgeon has 100% of his Roth IRA in bond mutual funds and ETFs.  The total account value is down over 25% over the last 27 months even including dividends and interest reinvested.

U.S. Stock Market Not as Strong as S&P and NASDAQ 100:

The market cap weighted S&P and NASDAQ 100 are dominated by large tech stocks which are part of an overall Artificial Intelligence (AI) mania.  However, the overall market, as measured by unweighted indices, is not nearly that strong. For example, the equal weighted S&P 500 remains below its record highs set on March 28th. Since that date, approximately 60% of the stocks that make up the S&P 500 have declined in price.

Also, most of the key averages have not followed the S&P 500 into record high territory:

Those in under performing stocks or stock indexes are told to have patience as per this cartoon, courtesy of Hedgeye:

Cartoon of a person looking at a person in a suit

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Bullish Sentiment Still Super Strong (no longer a contrary indicator?):

Sentiment among financial newsletters continues to be highly bullish and has been in that mode for some time. The latest poll from Investors Intelligence currently has 56.6% Bulls vs. 18.2% Bears and 24.2% looking for a correction (assumed to be >=10%).

Bullish sentiment has been above 50% on all but three occasions since November of last year while bearish sentiment has been below 20% for 24 out of the last 25 weeks.

Meanwhile, the VIX closed Friday at 12.22 (-2.86% on Friday) which is very close to a 52-week low but about half its 52 week high of 23.08.

Like so many other gauges and metrics (e.g. Fed monetary policy), bullish sentiment no longer acts as a contrary indicator for future stock prices.

Recap of BLS May Jobs Report:

The BLS reported on Friday  that U.S. employers added 272,000 non-farm jobs in May, exceeding economist estimates of 185,000 to 190,000.  That was higher than the average monthly gain of 232,000 over the prior 12 months. Average hourly earnings in May were also higher than expected, rising 0.4% month-over-month and 4.1% year-over-year.

However, the jobs report was really not that impressive:

Evidently, the U.S. bond market believed the economy was stronger than expected as yields rose sharply on Friday.  The 10-year U.S. T-note yield jumped 3.48% from 4.28% to 4.43%, while the 30-year U.S. T-bond yield rose 2.66% from 4.43% to 4.548%.

In our companion Sperandeo/Curmudgeon post, Victor exposes BLS job reports as sham at best and fraud at worst. Enjoy!


Be well, success, good luck and till next time………………………

The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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