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Market Rebound!

Market Rebound!

November 08, 2023

Last week, the major indices had their best week this year, with the major indices rising from 4.6% to 6.77%. Below is a chart of the returns of the indices last week:

Notice that for the first time this year in a weekly period, SP 600 (small cap) is the top-performing index, followed closely by the SP400 (mid-cap) index.

The SP400 and SP600 are significantly trailing the SP500 (large cap) and NASDAQ this year, and last week's outperformance of these two indices is a possible indication that investors are looking for new buying opportunities. This is good news as investors diversify their portfolios, and it can provide new momentum to the market's upward trend.

Many are unaware that the current top-performing NASDAQ index was the trailing index behind all three large, mid, and small-cap indices on a three-year basis. It may be a surprise to most people that NASDAQ was the former underperformer even with outstanding performance by Apple (AAPL) and several other tech stocks. Note on the chart below for the past three years, the near 40% underperformance by NASDAQ vs the SP 500 and the buying opportunity this sector became.

The story here is how market leaders change as investors rotate or rebalance their portfolios to buy underperforming potentially good value stocks. Astute investors understand that buying low and selling high means watching and then buying underperforming asset classes. Leadership in asset classes or individual sectors never holds the top category of performance indefinitely. At some point, even for a short time of 6 months to a couple of years, they will be surpassed by an underperforming investment.

This is the case for the NASDAQ index. Even though it had been the top-performing index for the past five and ten years, it was outperformed during the recent three-year period. During the past five- and ten years, NASDAQ has significantly outperformed the other three indices. Notice on the following charts how well NASDAQ had rallied during these periods.

The chart below shows the performance of the four indices for the past five years, with NASDAQ rallying 85%!

This next chart shows the same indices' performance for the past ten years, with NASDAQ rallying 247% and almost 300% better than the mid and small-cap indices.

What Does It Mean To Me?

History has proven that the leadership of sectors in the stock market rotates as institutional investors begin taking profits in current leading stocks and repositioning them into better-value trailing stocks. NASDAQ and the tech sector have been a top-performing asset class for many years. Although it may be surpassed by other sectors for periods of time in the future, our view is technology will continue to be a good place to invest.

However, we must be aware of how history has a bad habit of repeating itself. NASDAQ and tech were on a major uptrend during the 1995 to 1999 period, with almost any company with ".com" in its name appreciating significantly. But the party ended on March 15, 2000, as NASDAQ began its near 50% plummet during the next three years, and thousands of tech company stocks either dropped to near zero value or went bankrupt.
Some may remember that during the three-year busts, the money market had become one of the top-performing asset classes simply because of the stability of the account, even with low interest rates.

As mentioned, the major indices had their best week for the year. The SP500 rallied back above the 20, 50, and 200 Day Moving Average (DMA).

NASDAQ also jump back above its 20, 50, and 200 DMA.

We maintain our favorable view of the US stock market and economy. We remain optimistic for the major indices to resume their upward trend into the close of 2023 and continue into 2024.

Give us a call or send an email if you have any questions about this Weekly Brief. Also, welcome the opportunity to assist you with your personal financial planning or investment accounts. Let us know how we can help you and your family.