AN EGGS-CELLANT FIRST QUARTER!
What’s In Store For The Rest of 2024?

March 31, 2024

Weekly Market Outlook

By Donn Goodman


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Happy Easter!  All of us at MarketGauge hope that you and your families have enjoyed an extended holiday weekend and you are able to participate in this season of renewal.  We wish you and your families a warm Spring and a profitable upcoming second quarter of 2024.

We will jump right into this Market Outlook by conveying the obvious… what a positive and profitable month of March and first quarter 2024 it has been (unless you are a doom and gloom newsletter writer or a major short-selling hedge fund)

If you have time, please go back and revisit our recent Market Outlook columns in the Big View section of your subscriptions to see just how many times since late last year we suggested you take a bullish bias towards the stock market along with numerous charts showing that buying at new all-time highs historically has led to more gains and additional new all-time highs.

When the market hit its first few new all-time highs, we began to also convey that it was a good time to buy the market.  Most of our individual strategies have stayed fully invested during this time, helping our followers to profit from the continuing trends in the markets.

We have now witnessed 21 new all-time highs in the S&P 500.  Today, we would like to illustrate where many of the gains during the month of March and the first quarter of 2024 have emanated from.  Then, take you through a few charts and narrative about what we might expect for the remainder of the year.

The S&P 500 Index

Thursday, the S&P 500 closed at yet another record high, concluding a positive week, month and quarter.  As of Thursday’s close, 86% of the S&P 500 stocks are above their 200-day moving averages, marking the first weekly close above 80% since August 2021.   See chart below:

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Our own proprietary chart that applies moving averages on the expanding or contracting # of stocks above the 200-day moving average within the S&P 500 showed weakness in early February and then picked up momentum in early March and currently shows a GREEN light and positive bias heading into the second quarter of 2024.  See chart below:

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Grant Hawkridge below points out that when breadth returns to healthy levels (80%) after a washout, it often stays elevated for several months or even years before deteriorating.

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The takeaway: The S&P 500 survived on narrow breadth, but it could really thrive now that more stocks are participating.

Major Market Index Performance

To convey just how good the market’s performance has been for the first quarter, we offer the following table.

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Of course, we are not suggesting that it will be a straight line up and not come close to the annualized returns shown above, but it is important to keep in sight just how big these returns are for 3 months.

Remember, this is a continuation of November/December, which saw an approximately 20+% return in several of these indices.

A longer-term look at the S&P 500.

While we noted the numerous new all-time highs and expanding breadth above, we also want to show you the beautiful technical move that the S&P 500 index has made in the chart below:

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In recent Market Outlooks we have pointed out that it is important (and necessary) for the soldiers (small-cap stocks) to begin to participate along with the generals (mega and large-cap stocks) that have been the major drivers of cap-weighted stock market indices in the past 18 months.

Finally, the IWM just made a 2-year high.  The question is, will this positive small-cap momentum continue with a clear and decisive breakout?  If so these types of stocks may explode much higher.

This was something many of the analysts were forecasting and have been anxiously waiting for.  A further move would give proof that the BULL market will continue (more on that later).  See IWM chart below:

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Volatility remains low.  The absence of fear is also helping to drive stock prices higher. Option pricing, which is directly tied to volatility, is not projecting much fear.  Therefore, market insurance/protection (puts) is low and with speculative option prices (calls) also low, this is attracting speculators to want to take positions.  Higher priced option positions (writing puts and calls) are not offering high credit premiums that would normally accompany a higher volatility market.  This is helping to pull money into outright long positions and help institutional investors rebalance portfolios to a higher allocation to equities than we might see in a fearful market.   See the volatility chart below:

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Let’s examine the quarterly performance more closely:

Below we show the final heat map which illustrates where the market’s return has come from based on capitalization weighted indices given the fact that mega-cap company’s stocks certainly contribute the most to cap-weighted indices.

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We offer tables below showing the biggest positive drivers to the S&P 500 and the Dow Jones Industrial Average along with a few of the worst stocks for this past quarter:

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And here is a look at the large-cap, more value-oriented Dow Jones Industrial Average:

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A few takeaways from the charts above.  While the S&P has several semiconductor stocks listed among its best quarterly performers, the list is not populated by mostly technology stocks which we saw during the 4th quarter of 2023.  Additionally, on both lists we are seeing some financial stocks beginning to emerge as the prospect of interest rate cuts are pending.

Another surprise is that among the Dow’s worst performers are Apple, Intel, Nike, and Boeing, all major leaders in their industry groups whose stock prices have stumbled due to some business interruption (China), mechanical problem (BA), or consumer sales that have not lived up to expectations (NKE).

 

A Look at the Month of March.

To have an idea where we may be headed during April and beyond, it is important to review the most recent month (March) which made a major contribution to the first quarter.  We are now aware that for the first month in 5, technology stocks took a breather.  If you look at the beautiful move the Nasdaq 100 (QQQ) has gone through the past few years, you will notice the breakout in February and the consolidation that occurred in March.  This is a healthy and expected consolidation of the huge gains the index has made over the past few months.  See chart below:

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The best performing market indices for March 2024 are illustrated below:

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To drill down into what has been driving parts of the market higher and also examine the broadening out of stocks participating (recall we said 80% of S&P 500 stocks are above their 200-day moving average) is to review the equal weight index performance in the table below:

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The big winners for March were materials and mining with Gold miners taking the top spot.  I want to point out that if you follow Mish (you should) you are aware that for a while now (over the past year) she has been a fan of gold and recently wrote about gold mining stocks.

See the best performing sector ETFs for March below:

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As further validation that the gold (and gold miners) move recently is for real, we offer the following chart illustrating the recent breakout of gold and the new all-time highs.

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If you are a frequent reader of this column, this should not come as a surprise to you. We have been including gold in our analysis quite often over the last 3-6 months.  Additionally, with inflation staying elevated and the prospect for interest rate cuts, it is no surprise that commodities are taking a leadership position in the market.

Therefore, we are not surprised that the charts above show Oil & Gas and the Energy sectors have made their way to the top.  This has been a bullish period for Energy as evidenced in the chart below:

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Commodities have begun to make a nice move given the information shown above.  Can this continue?   We think so.  Emphatically so. 

The first thing is to understand that if we avoid a recession and the Fed drops interest rates 3 times as they suggested twice now, commodities are likely the big winners.  Part of the move in March has been predicated on the expectation that the Fed will follow through.  For more evidence about this we offer the following chart:

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Here is how commodity futures prices performed during March further validating that investors are becoming prepared for the drop in interest rates.

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What can we expect from April?

As we turn the calendar, we are now staring at the usually bullish month of April.

Here’s the high-level thing to know. The S&P 500 in April has averaged 1.5%, the second-best month of the year (only November is better). It has also been the third best month over the past 10 years, and it is the fourth best month the past 20 years and in an election year.

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The Remainder of 2024

Over the past six months, we have frequently included in the weekly Market Outlook charts and graphs that show what happens with a positive 60-day period, 3-month period, or even 5-month period beginning in November and continuing through March.

The expectations are positive and can be significant.

To reiterate this narrative and provide you with further statistics for what may occur during the remainder of 2024, we offer the following charts showing the past set-ups and how closely they resemble the period we find ourselves in now. We also reinforce that we are in an election year and that has, in the past, provided further ammunition for positive market returns, especially when an incumbent is running for a second term.   The charts follow:

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Please note that ANYTHING can happen and in no way are we suggesting you should take caution to the wind in your investment thesis.  At some point, there will be an overdue correction, which will likely be viewed differently by the talking heads and analysts alike.

These corrections after this kind of market run tend to be very healthy.

However, there could also be a black swan event, something out of the blue that could cause a sudden dislocation in stock market prices.

Therefore, like all MarketGauge investment strategies, blends and trading tools, we URGE you to put in place appropriate RISK MANAGEMENT so that you don’t put yourself in a position of taking greater losses than you desire or give up hard earned profits from the most recent profitable period.

We now turn it over to Keith and his team to go through the BIG VIEW bullets.  Again, we want to thank you for reading and wish you a happy, healthy, and enjoyable Easter holiday.

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Risk On

  • The two leading indices, the SPY and QQQ, paused this week with their uptrends still intact, while the lagging index, IWM, made a new recent high and put in the strongest performance. (+)
  • Modern family improved with Regional Banks entering a bullish phase and retail breaking out to new multi-year highs. (+)
  • 1-Month vs 3-Month volatility reading remains positive (+)
  • Stocks above key moving averages improved for both the SPY and IWM and everything is positively stacked and sloped. (+)
  • Rates dropped a bit and the longer-end of the yield curve closed above its 50-Day Moving Average and the IEF(7-10 Year) moved into a bullish phase and shows positive signs for the easing of rates. (+)
  • Volume pattern trends have been improving over the last couple weeks with more accumulation days than distribution days and the Russel confirming its strength. (+)
  • 52-Week New High / New Lows for S&P  improved on the week though it is at high levels (+)
  • Market Internals (McClellan Osc and Cumulative Advance/Decline ) for both SPY and QQQ held up and were positive on the week. (+)

Neutral

Risk Off

  • Utilities gained relative to the S&P and is showing some short-term leadership. (-)
  • Commodities exploded this week with new multi-year highs in Agriculture, Copper, and Gold hitting new all-time highs. (-)
  • Sector rotation is showing the beginning of some negative divergences with semiconductors down over the last week (-0.6%) while utilities gained +2.9%. Consumer Discretionary closed lower. (-)

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Donn Goodman