Have NA markets entered a sideways period?

Lots of stuff to talk about today.

Breadth sucks on the SPX

You may recall my recent blog “This market sucks”. Here’s a bit of data from June 4th.

Breadth at an all time level of suck-ness (is that a real word…?). See the chart below.

Note 1998, 1999: The % stocks outperforming the index. Compare that to 2023, 2024 YTD….

By gum, they look the same!

Question: What happened after 1999? Anyone, anyone? 

Answer (kid at the back of the class): “Um, was it, like, the tech bubble 50% meltdown?”

Teacher: “Very good, Johnny.”

Breadth sucks part II

21% of the SPX in 3 stocks!!!

Question: When were the Largest 3 Stocks ever 20%, or more, of the SPX Composition? 

Answer (same kid): “Um, like, NEVER?”

Teacher: “Very good Johnny. Here’s some share of NVDA as your prize.”

MSFT 7.0%, NVDA 7.7%, AAPL 6.3% as of June 5, 2024.

Sideways market

I’ve noted over the past couple of years that there is a reasonable chance for a relatively benign / sideways market pattern over the coming decade. Here’s a video I published on that topic back in 2022. This type of pattern has been seen many times through history. Bull runs and bear runs seem to be proportionate. Note the bull runs that follow the sideways periods on the chart below.

This is my chart from 2022, when we had exited a 13 year sideways market. We were 8 years into a bull. Now, its 10 years into a bull since that last sideways period. That’s mighty close to the proportion (13 years) of the prior sideways period…..

 

Are markets starting to brace for a sideways period in the next couple of years? Note markets since the late 2021 peaks….

TSX

Flat since early 2022. 0 gains. Nada. nil, nothin’…

SPX 500

Up roughly 10% (not annualized) over about 2.5 years! That’s around 4% or so annualized.

TSX flat, SPX low returns since 2021. Could this be the beginning of a sideways period?

BTW–check VT’s numbers during this period. Active management trumps passive investing when the easy days end.

 

Canada vs. US GDP

As noted in this blog:  Its ironic that voters believe a government printing and spending money will make them better off.

“An increase in money supply is the root of inflation” – Investopedia

Inflation benefits those with capital assets (real estate, stocks, collectables). It hurts the poor and the middle class.

Since the beginning of 2020, the bottom fifth of income-earning households have seen their nominal savings decline by nearly 6% while their real savings have declined 20.1% BearTraps. 

The Canadian Bobsled team has named their new super sled “Trudeau”… because nothing can take a country downhill faster!

Now we see the BOC lower rates to lower rates to get us out of the mess the government created. As the Fed holds still on rates….

Profit & protect against a weak loonie

The ECB looks set to cut rates this week, and the Bank of Canada did. Meanwhile, recent Fedspeak has been stodgily hawkish. Its a good chance that the loonie is stuck in a bind. What benefits (and protects) your portfolio against a declining loonie?

  • Canadian long bonds: set to benefit as rates are cut, although a depressed loonie may hold some of that gain back as international investors shy away from the currency. Still, my case for CDN bonds shows positive tilt via the technical profile – best to see it break out though. Here is the iShares Canadian long term bond ETF XLB:

 

  • Industries where a weaker loonie boosts margins: Manufacturing, transportation. Overbought.
  • Commodities: Not only do they trade in USD, but demand remains high given my prior comments on power grid usage, raw materials for the green movement, and stagflation trends. Chart continues to base. Breakout would be huge. Note this is the entire index. Certain commodities (gold, base metals) have already broken out.

  • Avoid: Industries who import goods such as consumer staples, retailers, domestic financials

 

Escaping taxes & tyranny

Cap gains and personal income taxes, carbon taxes and HST taxes. Ridiculous medical system. Flailing economy….. Its no wonder

 

One Comment

  • There was a good book about trading published back in 1989 called, ‘The Speculator’s Edge’ by Albert Peter Pacelli.

    I’t a superbly written book, but hard to find nowadays. Anyway his definition for inflation is as follows…

    ‘Inflation is an increase in the supply of money relative to the demand for it’.
    He also defines supply and demand…

    ‘Demand is the quantity of a good that buyers are willing and able to purchase at a given price’.

    ‘Supply is the quantity of a good that sellers are willing and able to sell at a given price’.

    It’s was written for the futures market but has applications for the stock market as well, as he was really writing a treatise about markets in general.

    If you can grab it, it will be well worth your while. A good education about markets in general.

    Reply

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