Weekly Update: What a Run
Good evening, and welcome to this week’s edition of Stealth Trades!
What a run.
The S&P 500 just saw its second-best November performance since 1980. The index posted a gain of 8.92% for the month.
In fact, the whole market performed well. The Nasdaq rose 10.7%, the Russell 2000 jumped 9.2%, and the Dow tacked on 8.77%.
The rally we predicted in the October 27 edition of this weekly update played out beautifully, and members who listened are up big over the last month.
But for the last week or so, stocks have been quiet. We have seen nice gains in a few pockets of the market. My Alpha stocks service owns a couple crypto stocks (MARA & BTBT) that both soared today and some nuclear stocks with over 20%+ open gains (CCJ & EU). But the general indexes have made minimal progress.
The S&P 500 is now sitting within spitting distance of its high of the year.
While I believe we will push through and make new all-time highs in 2024, it is worth comparing the other indexes to see which has more ground to make up and potentially more opportunity.
Below is a chart of the three major stock indexes from the March 2020 COVID lows through today:
I have noted on the chart the distance of each to their respective all-time highs.
The S&P 500, made up of the largest 500 publicly traded stocks, is just 5% away.
The Nasdaq Composite index, which represents more than 2,500 stocks listed on the tech-focused Nasdaq exchange, is 13% from new highs.
And the Russell 2000 index, representing small-cap US stocks, has a full 34% to go before reaching new high ground.
Small caps have severely underperformed this year against large cap stocks. And I believe this is setting up to be a big opportunity for investors.
Small cap stocks have not done poorly because they are overvalued and therefore less attractive investments. In fact, the opposite is true.
But 2023 has been a strange year…
Coming off the tail of a bear market, we experienced above-average inflation, the fastest interest rate hike in modern history, and two taxpayer-funded wars in the Middle East (on top of the usual nonsense). To say times are uncertain would be an understatement.
Historically, institutions would turn to gold or bonds in times like this. But with rates skyrocketing, bond values are falling off a cliff. And gold has been replaced by bitcoin as a risk asset (BTC is up 134% year to date).
At the same time, stocks rallied hard to start the year, leaving many funds looking like idiots with minimal exposure. So, they piled into the only names they could get in quickly that had ample liquidity – mega cap stocks like Apple, Amazon, Nvidia and Tesla.
This fueled the fire and led to big gains in this small handful of names.
Meanwhile, small cap stocks got no love. They were overlooked by fearful investors who flocked to the household names which did well in the last bull market.
So, the Russell 2000 went nowhere…
This leaves a lot of ground to be made up. And I am already beginning to see a shift toward small and medium-sized stocks.
Over the last five trading days, the S&P 500 and Nasdaq are up 0.7% and 0.03% respectively.
The Russell 2000 index, however, is up 3.1% on above-average volume. And I believe we will continue to see this shift toward smaller market capitalizations.
You see, the stocks that lead one bull market almost never lead the next.
Meta, Amazon, Apple, Tesla, Nvidia, Microsoft and Alphabet have been leading the charge for a decade. The odds they will continue this streak of outperformance at such robust size is highly unlikely.
All seven of the stocks I just listed are approaching or exceeding $1 trillion in value. ONE TRILLION DOLLARS!
It is a lot harder to double the value of a trillion-dollar company than it is a billion-dollar one. The stocks that outperform in the new bull market emerging now will likely be names most have never heard of. They will be the next Tesla, the next Apple, and the next Microsoft.
Do not make the mistake of only following the leaders of the past. Keep an eye out for new stocks showing rapid growth with exciting new products or services.
And do not be scared if they are already up several hundred percent. The true leaders will multiply many more times before topping.
Best wishes for your trading,
