Nobody loves an excellent bull market greater than me. Historical past tells us that we would like stay totally on the facet of the bulls. Perma-bears have an terrible long-term monitor document. They’ve referred to as 30 of the final 3 secular bear markets. Truthfully, those that can not ever see something apart from a downtrend forward ought to discover a new occupation or pastime. Here is the long-term chart of the S&P 500.

GDP + inflation + innovation = roughly a median 9% annual achieve on the S&P 500. Ask your self a query. What number of instances have you ever exited the inventory market and wished you had simply left your funding alone and untouched? Be sincere.

Significantly, how typically do perma-bears get it proper? Hey, pay attention, there’s nothing improper with being bearish sometimes for those who’re a shorter-term dealer. The inventory market strikes too far generally and rightfully must appropriate. And after years of secular bull market power, there comes a time when shares want greater than a easy correction and a secular bear market is justified. For my part, that is not now. Speak to me once more in 2030. We can’t be in a single for a very long time as the present 11-year secular bull market rages on. However, even throughout a secular bull market, the bulls should acknowledge when short-term dangers develop and portfolio changes ought to be thought of.

I imagine now is an efficient time to lean on perspective and the impression it may have in 2024.

Everyone knows (or ought to know) that the three aggressive sectors – know-how (XLK), shopper discretionary (XLY), and communication providers (XLC) – have a tendency to guide most secular bull market advances. However they do not lead all of them. And there are examples proper now that possibly our leaders have led for a bit too lengthy.

The S&P 500 simply superior greater than 16% in 41 buying and selling days from October twenty seventh by December twenty eighth. We will use a 41-day charge of change (ROC) to see how typically this 16% stage is reached or exceeded on this time-frame. Verify this out:

Such a transfer sometimes happens after a giant bear market transfer decrease or after a correction. The 2023 incidence got here on the heels of the July by October correction. These large positive aspects are usually not regular and barely end in comparable positive aspects transferring ahead. We have to pause and permit these positive aspects to be absorbed. Additionally, election years are weak traditionally throughout Q1, which is strictly the place we’re located proper now. Whereas I anticipated a scorching January in 2023 primarily based on a couple of of my indicators, I do not count on that in any respect in January 2024. Lows in election years are likely to coincide with March.

At present, the biggest sector within the S&P 500 is know-how, which represents 28.79% of the benchmark. Discretionary represents 10.84% and communication providers totals 8.55%. So these 3 aggressive sectors comprise 48.18%, or practically half of the benchmark. If these 3 teams merely take a couple of months to soak up latest positive aspects, we may simply see rotation transfer into different areas like industrials (XLI), financials (XLF), or well being care (XLV). These 3 extra value-oriented sectors signify greater than 34% of the benchmark. Whereas XLY is within the aggressive sector camp, it really seems to be prefer it may nonetheless present a carry to the S&P 500. Extra on that beneath.

Know-how (XLK) is clearly the one to observe although because it has the largest impression on the S&P 500. At present, from this chart alone, I see important dangers forward for those who’re overweighting know-how:

Nothing on this chart seems to be notably encouraging for know-how. The highest a part of this chart tells us that know-how’s relative momentum was VERY stretched – much like 2020 – and we all know what occurred subsequent. It was a prolonged interval of common to underperformance vs. the S&P 500.

The center a part of the chart reveals that the XLK:$SPX relative power is on the higher finish of its relative uptrend, which makes it tough to proceed outperforming. In truth, it is in all probability time to think about weak relative power forward. Lastly, the underside panel charts the 52-week relative efficiency. Cash has poured into know-how over the previous 12 months – once more much like 2018. It would not be regular for this to proceed larger. As soon as once more, this tells me the danger is to the draw back and it isn’t definitely worth the danger of overweighting know-how proper now.

I am going to make one final level concerning the probably relative weak spot in know-how. Take a look at this 20-year weekly chart of the XLK:

We’re on the high of the XLK’s 15-year channel, which has been problematic at each level on this channel, apart from the after-effects of the pandemic. It simply seems to be like time for a change in management for a bit.

So all of this leads me to a giant query. If know-how underperforms, the place ought to we search for relative power?

XLY:

The XLY is buying and selling a lot nearer to its decrease uptrend line, suggesting power may simply discover its method right here.

XLV:

The XLV has been consolidating and, due to this fact, underperforming the S&P 500 for fairly awhile. The latest breakout would be the set off this group must see much more cash rotating IN.

XLF:

Technically, we do not normally see this group lead. Given the circumstances of the 2008-2009 monetary disaster, the XLF has been a tricky place to become profitable. However I imagine the group was undervalued whereas short-term charges jumped and resulted in an inverted yield curve. 2024 is more likely to reverse that situation, which can profit the online curiosity margin for banks ($DJUSBK), a big basic tailwind. Ought to our economic system develop in 2024, which I imagine it’ll, it might be a goldilocks state of affairs for banks – a stable, and even perhaps bettering, economic system coupled with rising spreads.

It will likely be very attention-grabbing to see how the primary quarter of 2024 develops. Whereas I can not assure outperformance or underperformance of any space, I do imagine that we are able to assess danger and make extra knowledgeable buying and selling/investing choices.

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Glad buying and selling!

Tom