[Market Outlook] Has The Fed Engineered A Soft Landing?

A Deep Dive On the Magnificent 7. [Company Logo] Has The Fed Engineered A Soft Landing? A Deep Dive On the Magnificent 7. By Donn Goodman December 10, 2023 [image] Welcome to our weekly commentary and insight on the markets, economy and global macro inputs that have an impact on the investment landscape in the near future. We are pleased you are here. The markets ended on a positive note yesterday and continue their upward bias. We invite you to go back and review the past couple of weeks of Market Outlook which provided more details on how we began to see the rally coming in the markets. A combination of seasonal cycles coupled with positive indicators and our proprietary color charts showed a positive market environment approaching in late October. ([Click here for last week’s Outlook]()) The S&P 500 had the highest daily close yesterday (Friday, December 8) since March of 2022 when it began its long decline and produced a negative 2022 yearly return. See chart below: [image] November saw huge inflows into the stock market. See chart below: [image] While we cover the short, intermediate and longer-term charts that are compared to their 20-, 50- and 200-day moving averages for the Dow, the NYSE, NDX, and S&P 500 (this will be available in the recently launched MarketGauge Pro website after the first of the year), we want to illustrate below the longer term chart for just the S&P 500. It is rather easy to make the case that we are indeed in a period of upward market bias. Every day the number of S&P 500 companies that are above their 200-day moving average is increasing. [image] We consider this one of our longer term “safe” illustrations and indications of a positive or negative market environment. In late October we showed that the 20-day and 50-day charts had indicated a positive, bullish bias was approaching in the last week of October. Subscribers (of Profit Navigator) are aware of that algo’s powerful and robust engine, and that indicated a positive signal (and to take a position in SPY or SSO (2x SPY)) towards the end of October. The signal was triggered a few days before the market turned at the end of October. (if you want more information about the Profit Navigator, please reach out to Rob Quinn, our Chief Strategy Consultant at [Rob@MarketGauge.com](). It's All About the Magnificent 7. We continue to hear the narrative that it is all about the Magnificent 7’s overweight influence on the S&P 500. These 7 stocks, Alphabet, Apple, Amazon, Microsoft, Netflix, Nvidia and Tesla, do have a significant influence on the S&P 500 index (certainly as well with the NASDAQ 100-QQQ) Most of these stocks are valued at or above $1 trillion in market cap so they are the biggest companies in America (Apple is now over $3 trillion in market value). Given that the S&P 500 index is a market cap influenced index it makes perfect sense that these 7 companies would comprise 30% or more of the S&P 500 index influence. For the purposes of this illustration, let’s look at the group as if it was ONE stock. These are some of the current characteristics that would make up this one stock: - The stock (the average of the seven) is up a staggering 71% this year. - It has an $11.7 trillion market cap, equal to half of the U.S. GDP (let that sink in). - It trades at 33.1 times current (2023) earnings and 27.5 times forward (2024) earnings. - Last quarter it reported earnings-per-share ("EPS") growth of 51%, the best quarter of this current cycle. - In the current quarter, EPS growth is expected to be 44%. - These stocks gush free cash flow. They have so much cash on their balance sheets that they continue to buy back their stock and make each share more valuable. - Apple alone is sitting on $180 billion in cash and cash equivalents. - However, as the year-over-year comparisons get more and more difficult, EPS growth is expected to decelerate... to 30%, 14%, and a mere 8% over the next three quarters. These 7 stocks have helped fuel the S&P 500 index’s 19% gain for 2023. Compare that to the equal weighted index (where each of the 500 companies have an equal 2% contribution to the index) which is up 6% year-to-date. If you notice the last bullet point above, you will note that expectations are for these 7 stocks to begin to have earnings per share growth that begins to decelerate. Would we recommend buying these 7 stocks now? Since we don’t make discretionary decisions and instead depend on our formulaic algorithms to do the heavy lifting, our likely answer is we would be CAUTIOUS. These stocks are priced for perfection. Momentum may carry them further but if you look at the analysis they are selling at very high P/E multiples at this time. Looking at the most recent expectations for earnings growth (according to FactSet) for the markets (see below), you will notice that analysts are starting to reduce their forecasts for positive earnings growth. If EPS growth rates start to slow, it may very well have a greater impact on these 7 as they now sell for lofty valuations. This is also why some of these stocks have stalled recently while smaller companies, including those in the Russell 2000 small-cap index have begun to appreciate and gain momentum. [image] Don’t listen to all the narrative that it is ONLY these 7 stocks that are driving the market. This is not true and as our color chart above indicates, many, if not the majority of the stocks that make up the S&P 500 are currently participating in this year’s positive return. More importantly, many stocks that comprise the S&P 500 index are considered attractively priced and more favorably valued with plenty of room to appreciate further. See chart below: Use the links below to continue reading about: - The percentage of stocks near 52-week highs - The employment report - Fed watch - Consumer Spending - The weekly Big View bullets - [Click here to continue as a free member]( [Click here to continue as a PREMIUM member]( Best wishes for your trading, Donn Goodman CMO Market Gauge Asset Management [image] Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral. The the video analysis dives deeper. Get started here and continue with the links below. Risk-On - The Key US indices appeared slightly boring for the first half of the week but rallied into the end of the week, with the [Russell 2000 (IWM) and Diamonds (DIA)](=) consolidating at higher levels after becoming overbought last week. (+) - Most major market sectors were flat if not slightly down this week except [Homebuilders (XHB)](=) which is the leading sector on our list over the past 5-day, 3-month, and 6-month periods. (+) - The number of stocks within both the S&P500 and Russell 2000 that are above [key moving averages](=) continues to improve. (+) - The [US 20-Year Treasury Bond (TLT)](=) continues to improve and is now testing key resistance near the 200-day moving average. TLT has remained above its 10-day moving average for the past month and will look to keep this support as it attempts to push higher. (+) - Every member of [Mish’s Modern Family]() improved over the past week including Semiconductors (SMH) which had been selling off for the two prior weeks. Regional Banks (KRE) are testing a crucial resistance level right around $49 and will look to either reject or continue to break out early next week. (+) Risk-Off - The [Short vs Mid-term Volatility Ratio (VIX / VXV)](=) is now at its highest level since the July local top. (-) There's more... Use the links below to continue reading about: - The percentage of stocks near 52-week highs - The employment report - Fed watch - Consumer Spending - The complete list of weekly Big View bullets - [Click here to continue to the FREE analysis and video.]([Click here to continue to the PREMIUM analysis and video](. Best wishes for your trading, Keith Schneider CEO MarketGauge P.S. When you’re ready, here are 4 free ways we can help you reach your trading goals… - [Book a call with our Chief Strategy Consultant](), Rob Quinn. He can quickly guide you to the resources that you'd like best. - To discuss having assets managed by MarketGauge strategies, contact Ben Scheibe, at MarketGauge Asset Management at Benny@mgamllc.com - Get the foundational building blocks of many of our strategies from Mish's book, [Plant Your Money Tree: A Guide to Building Your Wealth](=), and accompanying bonus training. - [Review quick descriptions]( of our indicators, strategies, services and trading systems here. [image] Get more - follow us here... Twitter [@marketgauge]() and [@marketminute](=) and [Facebook]() To stop receiving this go [here.]() Got Questions?Office hours 9-5 ET (New York time) Email: info@marketgauge.com Live Chat: Go to bottom right corner of our [home page.](=) Call: 888-241-3060 or 973-729-0485 There is substantial risk of loss associated with trading any securities including and not limited to stocks, ETFs, futures, and options. Only risk capital should be used to trade. 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