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  • U.S. stocks have had a great year in 2023 — but these numbers tell a different story

    U.S. stocks have had a great year in 2023 — but these numbers tell a different story

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    U.S. stocks have risen sharply in 2023, with a small number of technology companies driving an ever-increasing share of the stock-market gains. 

    While the 11.7% year-to-date gains for the large-cap benchmark S&P 500 index
    SPX
    show 2023 has been a “good year” for stocks, that hardly tells the whole story, said Jonathan Krinsky, the technical strategist at BTIG. 

    The U.S. stock market has seen the median return for shares in the S&P 500 index rise merely 1.1% in 2023, which is “a different planet” compared with their median gain of 16.2% in 2014, when the benchmark index recorded a yearly advance of 11.4%, Krinsky said in a Sunday note (see chart below).

    SOURCE: BTIG ANALYSIS, BLOOMBERG

    The Russell 3000
    RUA
    — a barometer that represents approximately 98% of the American equities — had a median return of negative 2.2% this year, but the index has gained 11.3% year to date, wrote Krinsky, citing BTIG and Bloomberg data. In 2014, the median return for the Russell 3000 was 6.9%, and it recorded a yearly gain of 10.4%.

    Meanwhile, the median year-to-date return for stocks in the S&P 1500, which includes all shares in the S&P 500, S&P 400
    MID
    and S&P 600
    SML
    and covers approximately 90% of U.S. stocks, rose a merely 0.1% versus the index’s 11.2% advance this year, said Krinsky. The S&P 1500 recorded a median return of 8.8% in 2014 and was up 10.9%. 

    See: ‘Anxiety’ high as stock market falls, bond yields rise — what investors need to know after S&P 500’s worst month of 2023

    So far in 2023, investors have struggled to brush off a rise in Treasury yields primarily triggered by the Federal Reserve bumping up interest rates and the risk of recession, with hope that the stock-market rally hasn’t run out of steam yet. 

    However, the S&P 500 and the Nasdaq Composite
    COMP
    Friday locked in their worst month of the year, down 4.9% and 5.8%, respectively, according to FactSet data.

    Treasury yields continued to rise on Monday with the yield on the 2-year
    BX:TMUBMUSD02Y
    up 6.4 basis points to 5.110%, while the yield on the 10-year Treasury
    BX:TMUBMUSD10Y
     jumped 11 basis points to 4.682%. The 10-year rate ended at its highest level since Oct. 12, 2007, according to Dow Jones Market Data.

    See: U.S. stock-market seasonality suggests a potential rally in the fourth quarter. Why this time might be different.

    As a result, investors were hoping October and the last quarter of 2023 could bring some relief to the scorching summer selloff they had to endure in markets. Historically, the fourth quarter has been the best quarter for the U.S. stock market, with the S&P 500 index up nearly 80% dating back to 1950 and gaining more than 4% on average, according to data compiled by Carson Group. 

    “It seems to us that a rally [in the fourth quarter] is the consensus view based on the fact that seasonals tend to work that way,” Krinsky said. “While October is a strong month on ‘average’, it has been down ten of the last 30 years, with eight of those years losing 1.77% or more.”

    In other words, when October is good it tends to be really good, but when it’s bad it tends to be quite bad, Krinsky added. 

    U.S. stocks finished mostly higher on Monday with the Dow Jones Industrial Average
    DJIA
    down 0.2%, while the S&P 500 ended flat and the Nasdaq edged up 0.7%, according to FactSet data.

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  • 4 signs stocks are headed for a punishing selloff, as even strong performers look vulnerable

    4 signs stocks are headed for a punishing selloff, as even strong performers look vulnerable

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    U.S. stocks just touched their highest levels in two months. Yet, signs of a looming selloff are piling up, according to Jonathan Krinsky, chief technical strategist at BTIG.

    The S&P 500
    SPX,
    +0.33%
    and Russell 3000
    RUA,
    +0.40%
    are both trading just shy of their highs from mid-February, but market breadth hasn’t recovered, as index gains over the past month have largely relied on megacap names like Microsoft Corp.
    MSFT,
    +0.93%
    and Apple Inc.
    AAPL,
    +0.01%
    helping to offset weakness in other areas of the market.

    As of Friday, only 45% of Russell 3000 stocks were trading above their 200-day moving averages, according to data cited by Krinsky. By comparison, when the broad-market gauge was trading at its highest level of 2023 back in February, 70% of the individual stocks included in the index were trading above their 200-day moving average. Technical analysts use moving averages as a gauge of a stock or index’s momentum.


    BTIG

    Lackluster breath is looking like more of an issue analysts say, especially now that the Nasdaq’s outperformance appears to be fading after leading markets higher since the start of the year.

    Over the last two weeks, the Dow Jones Industrial Average
    DJIA,
    +0.30%
    has outperformed the Nasdaq Composite
    COMP,
    +0.28%
    by the widest margin since the two-week period ending Dec 30, according to FactSet data.

    Krinsky cited exchange-traded funds that feature megacap technology names, including the iShares Expanded Tech-Software ETF
    IGV,
    +0.45%    ,
    the Communications Services Select Sector SPDR Fund ETF
    XLC,
    -0.57%
    and Consumer Discretionary Select Sector SPDR Fund ETF
    XLY,
    +0.71%    ,
    as examples of emerging weakness in this critical sector of the market. Meanwhile, regional bank stocks, small-cap stocks and shares of retailers, all of which have lagged behind the market this year, look weak.

    See: Are tech stocks becoming a haven again? ‘It is a mistake,’ say market analysts.

    Krinsky summed up this dynamic thus: “The weak parts of the market remain weak, while the strong parts now appear vulnerable,” the BTIG analyst said in a Sunday note to clients.

    Furthermore, “[i]n absolute and relative terms, the tech sector looks like a poor risk/reward to us here,” Krinsky added.

    Low implied volatility is another issue for markets, Krinsky said. That can mean investors have gotten too complacent and markets may be heading for a selloff, analysts say.

    The Cboe Volatility Index
    VIX,
    -0.41%    ,
    otherwise known as Wall Street’s “fear gauge,” finished Friday at its lowest end-of-day level since Jan. 4, according to Dow Jones Market Data. The Cboe S&P 500 9-Day Volatility Index, which tracks implied volatility over a shorter time horizon, has also fallen to January lows, FactSet data show.

    Such low levels mean volatility could be poised to “mean revert,” Krinsky said, which may portend a selloff in the months ahead for the S&P 500, the most liquid and most closely watched gauge of U.S. stock-market performance.

    Implied volatility gauges measure activity in option contracts linked to the S&P 500 to gauge how volatile traders expect markets to be over the coming days and weeks. Typically, implied volatility advances when U.S. stocks are falling.

    The greenback has shown some signs of life in recent sessions, although the U.S. dollar remains well below the multi decade highs it reached back in September. That the buck bounced off its February lows late last week suggests that momentum could be skewed toward the upside for the dollar, Krinsky said, which could create more problems for stocks given the dollar’s tendency to weigh on markets during 2022.

    The ICE U.S. Dollar Index
    DXY,
    -0.43%    ,
    a gauge of the dollar’s strength measured against a basket of rivals, was up 0.7% in recent trade at 102.22.

    All of these factors support the notion that stocks could be headed for what Krinsky called the “reverse October playbook.”


    BTIG

    Just as the S&P 500 bottomed following the hotter-than-expected September report on consumer-price inflation, the market’s monthslong rebound rally may have peaked following last week’s CPI report for March, which showed consumer prices rose a scant 0.1% last month, less than the 0.2% increase that had been forecast by economists polled by MarketWatch.

    Not everybody agrees with this assessment. Marko Papic, chief strategist at Clocktower Group, cited market data going back to 1934 to show that U.S. stocks tend to rally after inflation peaks. Consumer-price inflation reached its highest level in more than four decades when the CPI headline number showed prices up 9.1% year-over-year in June.


    CLOCKTOWER GROUP

    U.S. stocks look set to decline for a second day in a row on Monday, with the S&P 500 off 0.3% at 4,126, while the Nasdaq Composite was down by 0.4% at 12,070, and the Dow Jones Industrial Average traded marginally lower at 33,881.

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