“Pretty, Pretty, Pretty Good” Stock Market (and Sentiment Results)…

02/23/2023

3 minutes read

2023.02.23 16:03

In last week’s note we reiterated our case from October that the “pain trade” was UP in the first half of this year DESPITE the short-term seasonal headwinds and possibility of near-term weakness (read full note for context):

I am fully aware that after taking such an unconventional position in the Fall – and following up with this note prospectively – that the market is likely to consolidate/pull back within minutes of me hitting the “publish” button! However, what may or may not happen in the short term has nothing to do with what happens in the next 6-12 months and we are constructive irrespective of any short-term noise/digestion:

S&P 500 index Returns in February (1950 – 2022)

source : Ryan Detrick

$SPX S&P 500 Large Cap Index INDX

Here’s what the chart above looks like this week:

$SPX S&P 500 Large Cap Index INDX

On Tuesday (during the 700pt DOW flush), I joined Seana Smith and Dave Briggs on Yahoo! Finance. Thanks to Taylor Clothier, Sydnee Fried, Dave and Seana for having me on the show.

Key Takeaway from the segment: “Bears should curb their enthusiasm. This is a normal consolidation after an ~18.5% rally off the October lows in a period of (end of Feb.) seasonal weakness. Markets don’t TOP when everyone is overweight BONDS, they top when everyone is overweight STOCKS…”

Here is some of the rental data I reference:

Source: CoreLogic via Seth Golden

Here’s a visual of household balance sheets (declining but historically peerless):

Balance Sheet

Source: Morgan Stanley (NYSE:)

On Friday I joined Cheryl Casone in-studio to talk markets, positioning, inflation and opportunities on Fox Business – The Claman Countdown. Thanks to Kathryn Meyers, Cheryl and Liz Claman for having me on:

Data Referenced in Segment:

Data Referenced in Segment

And finally, on Friday evening I joined Phillip Yin on CGTN America to discuss inflation and markets. Thanks to Longwei Zheng and Phil for having me on:

Pretty, Pretty, Pretty Good…

While most of what you have found in the last few months is negativity, here are some concepts we’ve been reminding viewers of in our weekly podcast|videocast.

This weekend I spoke at the MoneyShow. One of the other speakers was Jeff Hirsch of the legendary “Stock Traders Almanac.” You may remember this table we put out all of January – pointing to good things for 2023:

January – pointing to good things for 2023

In Jeff’s presentation, he presented a number of slides that speak to this statistical advantage – which point to good things to come:

Hitting January Indicator Trifecta After Bear Market

2022 Midterm Bear Sets Up 4-Year Cycle Sweet Spot

NASDAQ Amazing – January Trifecta Years After Bear Market

Pre-Election Best Year of 4-Year Cycle

All courtesy of Jeff Hirsch at StockTradersAlmanac.com

The trend is your friend:

S&P 500-Monthly momentum and 2009-2023 trend channel

Source: RBC (TSX:)

Labor supply coming back online:

Labor Supply

The “Last Shall Be First” theme we highlighted in our notes in Q4 is playing out in spades:

The Asset Class Quilt of Total Returns

Tom Lee was a KeyNote speaker at the MoneyShow this weekend. Here are some of his best slides from FundStrat.com. We’ve talked about these themes in recent months and here is the latest data:

CPI components in deflation above 30% = positive signal:

CPI components in deflation above 30% = positive signal

Wall Street Pessimism Pervasive:

Wall Street Pessimism Pervasive

High Yield Market is Healing:

High Yield Market is Healing

HY Signal for Equity Markets after negative year:

HY Signal for Equity Markets after negative year

Stock Market Bottoms Well Before Earnings:

Stock Market Bottoms Well Before Earnings

Market Breadth is improving:

Market Breadth is improving

In our view, despite the short term consolidation, the intermediate term outlook for equities is:

Now onto the shorter term view for the General Market:

In this week’s AAII Sentiment Survey result, Bullish Percent (Video Explanation) collapsed to 21.6% from 34.1% the previous week. Bearish Percent jumped to 38.6% from 28.8%. I have rarely seen retail investors panic this much, this quickly.

Sentiment Survey Historical Data

!AAIIBULL AAII Bulls INDX

The CNN “Fear and Greed” dropped from 74 last week to 63 this week. Sentiment cooled. You can learn how this indicator is calculated and how it works here: (Video Explanation)

Fear & Greed Index

And finally, the NAAIM (National Association of Active Investment Managers Index) (Video Explanation) ticked down to 81.43% this week from 85.4% equity exposure last week.