US Stock Market: Selling The Election In Anticipation of No Year-End Rally?

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Thank you for reading this week's edition of Closelook@Hypergrowth, dated October 23, 2024 ??. The next edition will be published on 30 October 2024.

A Closelook Into This Edition

1. This Week's Action: Nasdaq 100 And Its Subsectors Look More Toppy
2. Valuation: The Buffett Indicator Screams A Very Loud Sell Signal
3. Did You Know? Goldman Sachs Just Predicted A Miserable Decade For US Stocks Ahead
4. The Hypergrowth Portfolio: Anticipating a Year-End Rally, But Less Than Usual
5. This Week's Stock Spotlight: Sprouts Farmers Market
6. Knowledge Corner: What Is A Minsky Moment?
7. Upcoming Transactions: Waiting For A Dip
8. Final Words: What Can Possibly Go Wrong? A lot!

This Week's Action: Nasdaq 100 And Its Subsectors Look More Toppy

The Nasdaq 100 may still be in the process of forming a double top. It has closed all three gaps from the July high to the August low and has moved sideways since.

The price action looks increasingly “wedgy” to me, which is always alarming. A wedge is a topping formation with potentially more long-term trend-reversing implications.

The Nasdaq 100 Equal Weight Index has failed to push through and confirm the ATHs.

Given that we have entered the final week of mutual fund tax selling, are in the middle of the earnings season, and only a few days away from the US elections, elevated volatility can be expected into November. The key message from last week still holds.

The wedge-type move-up we have seen since mid-September may also indicate a short-term top. I expect election uncertainty and tax selling by mutual funds (until October 28) to put pressure on the stock market in the two weeks ahead.

The same applies to the other key messages from last week’s edition:

Geopolitical tensions may also rise as the winter war period approaches in Ukraine, and the Israeli counterstrike against Iran is due shortly. Any slight earnings or guidance misses will lead to wild downturns in hypergrowth stocks, as the ASML example from last week shows.

I would also like to repeat this statement from last week: Contrary to its regular seasonal pattern, the US stock market has increased in the past six weeks. A more significant dip is overdue for a year-end rally to start in November.

The Nasdaq 100 Technology Index has failed to move close to its old highs.

The Nasdaq 100 Ex Tech Index reached a new ATH but has displayed significant weakness this week. The Nasdaq 100 Ex Top 30 Index has also lost steam.

The broadening theme inside the Nasdaq 100 has ended, and I have started to favor the Mag-7 stocks over the smaller ones for the rest of the year.

Higher yields usually do not bode well for the smaller Nasdaq 100 stocks. And the yield on the 10-year Treasury has moved above the crucial 4.2 % level. And I expect it to stay above 4 % until the end of 2024.

Valuation: The Buffett Indicator Screams A Very Loud Sell Signal

The US stock market has just hit its most overvalued level since the peak of the Dot Com Bubble. The SP 500 Forward price-to-sales ratio has exceeded its post-Covid peak and has reached its 2000/2001 level.

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1. Valuation: The Buffett Indicator Screams A Very Loud Sell Signal
2. Did You Know? Goldman Sachs Just Predicted A Miserable Decade For US Stocks Ahead
3. The Hypergrowth Portfolio: Anticipating a Year-End Rally, But Less Than Usual
4. This Week's Stock Spotlight: Sprouts Farmers Market
5. Knowledge Corner: What Is A Minsky Moment?
6. Upcoming Transactions: Waiting For A Dip
7. Final Words: What Can Possibly Go Wrong? A lot!