29.01.2024 – January has gone well for the bulls so far. However, there has been a slight lack of market breadth – both in the USA and in Germany. This in turn could make the stock market susceptible to setbacks in the week of the Federal Reserve. Or, alternatively, the bulls will then also grab hold of the laggards.
The blog “The Market Ear” (TME) – an offshoot of our favourite “ZeroHedge” – has broken things down in detail. Only 13 stocks have pulled the entire SPX higher so far. Here the S&P 500 in the daily chart.
And the gains of the top 5 alone would have contributed 70 per cent to the gain of the entire index. These mega caps are: Nvidia, Microsoft, Meta Platforms, Alphabet and Amazon. We add: So why not buy these high-flyers now? Because then disappointments in earnings, management misselling or any other scandals would carry a lot of weight – an index spreads the risk.
TME also stated that the number of upward earnings surprises had risen sharply. And the market is so bullish that even the 20 per cent of shares with disappointments are hardly being punished.
And then TME provides a particularly nice factlet on number crunching: since 1953, the S&P 500 has closed the rest of the year with gains in 84 per cent of all cases when it ended January with a gain of at least 2 per cent. The median was a whopping 13.5 per cent. So let’s wait and see the performance at the end of the month.
Germany also had a strong quintet to offer, TME continued. An index consisting only of SAP, Siemens, Allianz, Munich Re and Deutsche Telekom would have beaten the DAX by 90 percentage points over a ten-year period.
The week of the Fed
We are curious to see whether the market breadth will increase shortly – the Federal Reserve will speak on Wednesday. A commitment to lower interest rates sooner rather than later could fuel the bull market and, starting from Wall Street, also boost share prices in Frankfurt. Investor Peter Tchir from Academy Securities issued a warning to investors in advance: Wednesday’s press conference, which will take place between 2.30 and 3.00 pm Eastern Time, will be the only important event. This is because Fed Chairman Jerome Powell has taught the market that what he says before the Fed meeting is not what he says at the press conference.
We add: It also appears that the press release is often written by other Fed decision makers. And that Powell has his own view of things, which swirls around the market as soon as he steps up to the mic. So stay alert and keep an eye on the real-time news! We will of course be looking at the Federal Reserve in more detail this week. The Bernstein Bank wishes you successful trades and investments!
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