By Lucas Downey, Contributing Editor, TradeSmith Daily
Welcome to the new bull market.
Stocks surged across the board in November — just as we said they would. The S&P 500 put in a face-melting performance by gaining 8.9%. That's one of the best November returns in the past 100 years.
While that's a stunner, what's going on in the shunned small-cap land is even more impressive.
After underperforming for many months, smaller companies are finally having their renaissance. And we believe there's a lot more room to go… well into 2024.
Today, we're going to size up the latest rebirth in small caps, helping you understand why they're set to keep climbing.
But most importantly, we'll cover the market sectors you should absolutely have exposure to for this new bull market.
Hang around until the end, and you'll learn two of my favorite all-star stocks surging right now…
For the first time that I've ever heard of... a bubble is about to burst on a schedule.
Yes, we know the exact date when everything is going to change in the financial markets.
The world will be divided. There will be the people who got out ahead of time and make massive gains. And the people who got out afterward, losing years of savings in the process.
As usual, the rich and elite are already way ahead of this trend.
When the $6 trillion bubble pops, you want to be with them.
Sometimes you have to look backward to see the future.
Back on Oct. 19, here at TradeSmith Daily, I made the data-driven case to buy the ultra-unloved small-cap space. It was a bold call then, as interest rates were surging… and higher interest rates mean painful loan costs for small-cap companies.
When it comes to investing, timing is everything. And while we didn't know it then, that day would mark the top in interest rates.
As you can see below, the 10-Year yield peaked at 4.99% and fell to 4.22% last Friday:
Source: FactSet
That's a monster-sized macro move of 77 basis points in roughly six weeks.
Any time rates move that fast in a straight line, it's going to have an impact on other asset classes… namely equities.
When rates surge, it chokes off growth, harming smaller undercapitalized firms more than cash-rich large caps.
When rates plunge, like lately, it has the opposite effect…smaller firms see added leverage and margin expansion as the cost of capital drops.
The chart below shows this beautifully. The S&P Small Cap 600 has ramped 10.5% since Oct. 19, outperforming even the S&P 500's 9% gain.
And lately the outperformance has been more dramatic. Small caps are up 2.8% in the last week, more than triple the move of large caps at 0.8%:
But when you dive below the surface of the market, you'll find new leaders.
The Sector Leaders of the New Bull Market
I calculated the sectors' performance since the Oct. 19 rate peak, and the top groups are all set to continue benefiting from this collapse in interest rates:
Discretionary stocks have rallied 14.7%
Financial companies have jumped 11.7%
And Real Estate, possibly the group most levered to lower rates, have catapulted 11.4%
Folks, these three areas of the market are benefiting mightily from lower rates. And it makes sense.
Discretionary stocks should advance given lower capital strain on consumers and businesses alike.
With so many strange events happening across the economy (longest bear market for bonds since Civil War... unprecedented bank closures... and soaring prices) – it's no wonder the richest investors are loading up on gold. But what you might not realize is there's a much better way to profit from rising gold prices – without ever touching an ETF, mining stock, or even bullion.
One company that exudes all of these traits, which I showcased back then, is popular shoemaker Deckers Outdoor Corp. (DECK). You can see a detailed analysis of that company here.
The No. 2 all-star name is financial powerhouse S&P Global (SPGI).
Look how both of these outliers have towered above major index returns since the rate peak on Oct. 19.
Deckers ripped nearly 35%… And S&P Global ramped 18%:
This, folks, is why it's paramount to focus on the best stocks out there.
Bet on small to win big! Zero in on top-notch Discretionary, Financials, and Real Estate companies benefiting from falling interest rates. Each of these areas are climbing higher and have a healthy runway into next year.
Finally, if you're like me and are looking for data-driven stock selection, TradeSmith is your answer.
My colleague and business partner Jason Bodner just started publishing TradeSmith Investment Report, a regular research advisory that's tuned in to big institutional buying in the highest-quality stocks in the market.
We want to know which areas of the market you want us to cover and develop strategies for. Thus far, the hundreds who've responded have given us a great picture, and editor Michael Salvatore will share the results this coming Sunday.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
Post a Comment
Post a Comment