By Jeff Clark, editor, Market Minute
Today, we’re doing something a little bit different – based on feedback from you, my subscribers.
You wanted more video content, so that’s what I’m bringing you. I think it’ll be a great way to get my finer points across.
Let me know what you think – good or bad – right here.
And if you prefer, you can scroll down to read the transcript.
Click below to watch our first video edition of Market Minute.
Transcript
Good morning. I’m Jeff Clark and we’re going to do something a little bit different in Market Minute today because the stock market is doing something a little bit different. And I thought it might be easier to get my point across today in video format. What I want to talk about is the change that seems to be taking place in the stock market.
We’re kind of getting 2021 or late 2010 vibes right now in the stock market. And what I mean by that is we’re moving from what has been largely a sustained momentum-based rally to more of a traditional ebb and flow in the market.
Basically what I’m saying is for most of this year, stocks that have been strong have gotten stronger. And stocks that have been weak, have gotten weaker.
So we’ve had this momentum on both sides, those going up, and those going down. And there hasn’t been much back and forth. That’s kind of an abnormal situation.
A Rare, Longstanding Trend
Now if there is a normal situation in the market, it tends to be more of an ebb and flow type. It’s kind of a reversion to the mean, if you will, where stocks rally, then they pull back a little bit, and they rally again…
Or if we’re in a downtrend, stocks fall then rally a little bit, then they fall back again. That tends to be more the typical type of action in the market. It’s doesn’t happen often – I mean it happens occasionally where you do get this momentum-fueled situation, but typically that lasts anywhere from a few weeks to a few months.
It’s rare that you see a trend like that last six months or longer. And that is indeed what has happened so far in 2024. And when you think about it, you have to go all the way back to 2021 and 2010. They were the two, at least in my mind, notable times where we saw something similar. Right now, we seem to be at the end of that phase.
You know, if you think back a couple of weeks ago, I shared with you a chart and I’ll show it again here today. I shared with you a chart in an essay, and here it is.
This shows the performance of the S&P 500 growth stocks and the S&P 500 value stocks, comparing the two performances.
What this chart shows you is that, when this chart is rallying, it shows that growth is outperforming value. And when the chart is falling, it shows that value is outperforming growth.
And a couple of weeks ago we got to the point right in here, at the very end of June and the beginning of July, where we were at basically a historic extreme in the level of this chart. You have to go back to late 2021 to see it as high as this.
This means that growth has so far outperformed value that we’ve got this rise in the chart. And I said at the time – and this was I think the middle of July when I pointed this out – the way that this chart corrects itself is either by the growth stocks falling or the value stocks rallying.
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Get Ready to Change Up Your Strategy
Indeed, over the past couple of weeks we’ve seen growth stocks pull in a little bit, and we’ve seen value stocks rally a little bit. And I think that’s the trend that’s going to stay in place for the rest of this year and maybe for a good portion of next year.
The reason I say that is if you go back to the end of 2021, the last time we had such a divergence in the value and the growth… when this peaked, we got this sudden downshift, very similar to what we’re seeing today.
And that downshift lasted over a year, the entire year of 2022. And this concerns me a little bit because it does mean that the broad stock market is probably in for a little bit of trouble. Especially as we approach the traditional week months of September and October, I think we’ve got some concerns going on with that.
And if you look at when we saw this before in 2021, 2010, and 2011, the S&P 500 started off a little bit rough. We ended up gaining 2% on the year, sort of a suboptimal performance. And in 2022, the last time this happened, the S&P 500 lost 18%. So I’m a little bit cautious here.
That doesn’t mean you stop trading and you hide in a bunker or you do anything crazy like that. What it means is you alter your strategy. The things that worked well earlier this year probably aren’t going to work so well anymore. And the strategies that had a difficult time performing are probably going to start outperforming.
And in tomorrow’s Market Minute, we’ll do another video presentation and I’ll show you a little bit about the strategies that I think are going to pay off for the rest of this year, and probably into a good deal of 2025.
Thanks for your time today. We’ll update tomorrow.
Take care,
Jeff Clark
Editor, Market Minute