Three Bright Spots in a Tough Market
Anthony Summers|October 31, 2023
A lot can change in just one week.
The S&P 500 is now more than 10% below its 52-week high… and it has lost nearly 40% of its gains since October 2022. The same is true for the Nasdaq.
This means two out of three major stock market indexes have officially entered correction territory. And the Dow isn’t far behind them.
Most stocks have weak momentum. Only 25% of S&P 500 companies are trading above their 200-day moving averages.
That’s not a good sign.
But let’s break it down even further.
The sectors with the weakest momentum have a larger percentage of stocks trading below their 200-day moving averages.
In the chart below, you can see that most sectors are experiencing serious market weakness right now… even compared with what was happening just a month ago.
But before anyone thinks it’s all bad news… there are still some bright spots in the market.
Buoyed by elevated oil prices, energy stocks are enjoying a bullish fervor. On the earnings front, IT stocks have been crushing it… with 95% of companies reporting above-line third quarter earnings.
Then there’s the communication services sector – which includes megacap names such as Alphabet(GOOGL), Meta Platforms (META) and Netflix (NFLX).
Only a third of these companies are trading above their 200-day moving averages… yet this sector reported the highest year-over-year earnings growth of any industry in the third quarter.
Now, while I’m far from a permabear, I was very skeptical of the bullish psychology that dominated the market up until this past July.
The economic data didn’t justify the optimism. It still doesn’t.
But as the sectors mentioned above prove, good stocks can be found amid bad ones… and opportunity can be found amid crisis.
For a long time, I’ve argued that stocks are overvalued. And a drop in prices is the only solution to that problem. So I’m not afraid of a falling stock market.
In fact, I welcome it.
Lower prices mean less potential risk… and more potential reward.
In the words of Seth Klarman…
You cannot ignore the market – ignoring a source of investment opportunities would obviously be a mistake – but you must think for yourself and not allow the market to direct you. Value in relation to price, not price alone, must determine your investment decisions.
More investors ought to think this way.
Anthony Summers
Anthony Summers is the Director of Strategic Trading for Manward Press and is a contributor to Manward Financial Digest, Manward Trading Tactics and Manward Letter. He is a former senior analyst for The Oxford Club, where he closely worked with some of our nation’s sharpest financial minds for nearly a decade. Anthony is a self-styled “conservatively aggressive trader” and has earned a reputation for developing unique trading strategies that focus on low-risk, high-return opportunities in both stock and options markets.
