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“People who exit the stock market to avoid a decline are odds-on favorites to miss the next rally.” – Peter Lynch
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Yesterday’s weaker-than-expected headline CPI for March didn’t ultimately do much to boost the market, and today the focus will shift to the PPI which is expected to come in unchanged m/m at the headline level and increase 0.2% on a core basis. Along with PPI, jobless claims will also be released, and those are expected to increase to 235K from 228K last week. After weeks of thinking that initial claims were stuck below 200K, we learned last week that after benchmark revisions claims have actually been above 200K for nine straight weeks and 18 of the last 20. Amazing how some revisions can have such an impactful change on the narrative.
We don’t know what to call what the market has done over the last six months, but yesterday did mark the six-month anniversary of the October low. The S&P 500 is up 12.6%, and its peak performance was a gain of 14.4% as of February 2nd before the stronger-than-expected January employment report sparked a sell-off of nearly 8%. During that decline, the S&P 500 managed to stay above its prior low from December, and in the rally that followed it has yet to even test its February high. That’s just another reason we don’t know what to call what the market has done over the last six months. New bull market? Bear market rally? We are in a bit of a no man’s land.
The chart below shows the performance of the S&P 500 and its industry groups since the 10/12 closing low (blue bars) and each one’s peak performance from the close on 10/12 (gray bars). Semis have been leading the way higher, and it’s not even close. Through yesterday’s close, the group was up over 50%, and at its post-October peak, it was up just shy of 60%. Behind Semis, the only other groups in ‘bull market territory’ (up 20%+) are Consumer Durables, Consumer Services, Software, and Capital Goods.
With only five groups up 20%, it’s not the type of performance you would expect to see if this was a bull market, but at the same time, there has been nothing normal about anything market or economic-related in the last three years. While only five groups are currently up 20%, 14 of the 24 have been up at least 20% relative to their 10/12 close at some point since then. The fact that Semis have led the advance is probably one of the most encouraging characteristics of the market’s performance over the last six months. The group is one of the most cyclical of them all and the best leading indicator for the broader market.
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