November 7, 2022

In today's issue of the 1-Minute Market Report I focus on the 5.4% bounce we've had since the October 12 bottom and highlight the parts of the market that have gained the most ground. I begin with the returns for the major asset classes, and then work my way down through sectors, and then equity groups.

The Bounce.

After rallying 9% off the October 12 bottom, the market pulled back last week but still sits 5.4% above the low point.

11-6 market bounce

Major asset class performance.

Here is a look at the performance of the major asset classes since October 12 (the bounce) and year-to-date. European stock markets are up 11.5% on average since the bottom but they still lag behind the S&P 500 on a year-to-date basis.

The small-cap Russell 2000 is outperforming the S&P 500 since the bottom and year-to-date. Commodities are trouncing all other major asset classes on a YTD basis, largely due to the rise in oil, natural gas, and agricultural prices.

Bonds are having their worst year since the 1980s, courtesy of the Fed-induced spike in rates across the board. Volatility, while still high historically, has eased a bit since the October low.

The newest asset class - blockchain - has not participated in the bounce, and it has lost more than half of its value YTD. It will probably recover, but it will take some time to make up all of that lost ground.

11-4 asset class performance

Equity sector performance

For this report I use the expanded sectors as published by Zacks. They use 16 sectors rather than the standard 11. I find that using all 16 gives a fuller picture of which areas of the market are attracting the most buying and selling interest from investors.

Defense contractors like Boeing, Lockheed, and Raytheon are leading the way higher since the October low. Energy, which has recently been under pressure, has perked up again and leads the YTD sweepstakes by a mile. 

Trailing the rest of the pack are the usual suspects - tech, consumer discretionary, and communications services. Meta can't get out of its own way, and even Alphabet is struggling.

11-6 equity sector performance

Equity group performance

For the groups, I separate the stocks in the S&P 1500 Composite Index by shared characteristics like growth, value, size, cyclical, defensive, and domestic vs. foreign.

Defensive names in healthcare, consumer staples, and utilities are leading the bounce and the YTD numbers. Foreign Developed markets, especially in Europe, are rebounding nicely. Value is beating growth in all size categories.

The top 7 stocks by market cap (big tech names, like Apple, Microsoft, Alphabet) are by far the worst performing equity group year-to-date. While all the other groups are higher since the October low, these stocks are headed the wrong way.

11-6 equity group performance

Final thoughts

You may be wondering why I have been calling the low on October 12th "the bottom." There is little to prevent the market from making a lower low, thus establishing a new bottom. In fact, we may make several new bottoms followed by more failed rally attempts before this bear is finished. When I say that the October low was the bottom, I am intentionally leaving out the caveat "for now" because I'm measuring the bounce, and a bounce must have a starting point.

If we haven't yet found the final bottom for this cycle, I believe that we are getting close. There are many things that can go wrong, but the market is always looking ahead, past today's headlines and dour predictions by the punditry. Higher rates for longer than we once thought? I think that's already priced in. 

Recession on the horizon? Already priced in, although a deeper than expected downturn would rattle investor confidence. Persistent inflation? Priced in, and with a slowing economy, we have probably seen the worst of it.

As of today, my worst case scenario is 3300 for the S&P 500, which would be 7.7% below the October low. But I'm not going to wait for the market to hit that low before I do any new buying. I will continue to take advantage of opportunities to pick up high quality merchandise in defensive sectors like healthcare, staples, and even some parts of the bond market like IG corporates, munis and agency MBS for example. 

My advice is to get your buy list ready, go slow, and stay with defensive areas of the market. Just don't fall into the trap of trying to pick "the" bottom. 

About the author 

Erik Conley

Former head of equity trading, Northern Trust Bank, Chicago. Teacher, trainer, mentor, market historian, and perpetual student of all things related to the stock market and excellence in investing.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}