Who Keeps Turning Down the Heat on Wall Street?
Let's take the temperature of this week's market, discuss my SoFi trade, and look at some interesting trends in the 'Big Six' vs. the 'Mag Seven.'
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It's not that cold .... You'll just need to wear a hoodie, and socks. Don't forget to wear socks. Oh, and shoes. No flip flops. For the fifth consecutive trading day, the major U.S. equity indexes traded lower. For the third day in four for this holiday week, markets showed signs of life early on in the session, pulling in some bulls and then moved lower as the bears took advantage of the early prices. This is how downward changes in trend can begin. While that much is true, this week has not consisted of the kind of trading volume that one would associate with high conviction activity. Same with last week. That's at least true for names domiciled at the New York Stock Exchange or across the membership of the S&P 500.
Trading volumes have been more elevated across the Nasdaq Composite and for names domiciled at the Nasdaq market site. That could mean that while there is a little more indecision for "old economy"-type stocks, that capital has been leaving mega-cap tech and rotating elsewhere. The Roundhill Magnificent Seven ETF MAGS is now down five straight days, while the Russell 2000 and the iShares Russell 2000 ETF IWM have both posted three "up" sessions in five and four "up" sessions in six.
Not As Bad as It Felt
On Thursday, after opening higher, and then getting kidney punched, the S&P 500 gave up 0.22% and the Nasdaq Composite gave back 0.16%. Meh. Treasury prices did not move all that mush and really haven't this week. What did move was the U.S. Dollar Index, as a string of European macroeconomic data-points printed in a state of contraction. Crude oil spiked on Thursday as well, which is really something because a U.S. Dollar Index that spiked above the 109 level should have had a deflationary impact on commodities like crude. Maybe it did. That would be something to chew on. Gold also moved higher for the day in the face of that stronger dollar.
As alluded to above, for the Thursday session, the Russell 2000 posted a slight gain, but real strength moved into semiconductors as a group. While the closely followed Philadelphia Semiconductor Index gained 0.83% on Thursday, its less focused upon sibling, the Dow Jones US Semiconductor Index gained 1.82% for the session. The semis were led by Arm Holdings ARM, Micron Technology MU and Nvidia NVDA, all of which gained a rough 3% or more over regular trading hours. Software stocks did not participate in that rally. The Dow Jones U.S. Software Index gave up 0.48%.
For the day, just four of the 11 S&P sector SPDR exchange-traded funds closed in the green, with Energy XLE again way out in front at +1.77%. Both Materials XLB and Consumer Discretionaries XLY lost more than 1% on Thursday.
Minty Fresh?
Almost. Kind of odd for a "down" day. Breadth was not bad at all on Thursday after not really being that nasty on Tuesday, either. Winners beat losers by a rough 5 to 4 margin at both the NYSE and the Nasdaq. Advancing volume took a commanding 69.7% share of composite Nasdaq-listed trade and a 57.4% share of composite NYSE-listed activity on Thursday.
In addition, aggregate trading volume, while still light, was up 15.7% day over day across NYSE-listed securities. However, aggregate trade, while still more elevated than for its NYSE counterparts, was down 1.5% across names domiciled at the Nasdaq. I have said this a few days in a row now, but the markets appear to have set up at least another run to the upside this morning. We'll see if any early gains made can stick. While I need to be shown at this point, the market is ripe for an algorithmic counter move to the market's recent direction.
Yes ... on SoFi
Because several readers reached out and asked, yes, I was a buyer of SoFi Technologies SOFI on Thursday. I did put the word out on Twitter or "X" as it is now known, but apparently some readers are either not on Twitter or do not follow me on Twitter.
For those who do not know what happened, SoFi Technologies gave up 8.25% on Thursday after being downgraded from Market Perform (hold-equivalent) to Underperform (sell-equivalent) at KBW by four-star rated (by TipRanks) analyst Tim Switzer.
Now, I don't mean to knock Switzer, but the fact is over the past 12 months, though he has an 82% success rate in direction on his calls and his calls have returned (a below S&P 500) 17.3%, that he is just not good at making calls in SOFI. As a matter of fact, Switzer has never had a positive rating on SOFI and raised his target price from an already ridiculously low $7 to $8 with his downgrade.
As a Matter of fact, Switzer lowered his target price from $7.50 to $7 last summer and kept it there as the stock ran from trading with a $6 handle to trading with a $16 handle. So, while Switzer is a solid analyst overall, every single one of you retail traders that have been long SOFI this year have absolutely crushed him in that name.
Switzer really should not cover a name where he has failed so consistently. The stock may go down from here but the algorithmic reaction to a negative call in a stock by an analyst that has never been positive or even accurate on that name is absurd.
Interesting Facts
According to a note published by UBS, which I read about in a piece written by Monica L. Correa at Seeking Alpha, the "Big Six," not the Magnificent Seven, really boosted overall U.S. stock market performance by themselves in 2024 and going back to the market lows of 2022. The Big Six would include mega-cap names Apple AAPL, Amazon AMZN, Alphabet GOOGL, Meta Platforms META, Microsoft MSFT and Nvidia NVDA, but leaves out Tesla TSLA, which is a member of the Mag Seven and Netflix NFLX which was a member of FANG.
UBS points out that with the S&P 500 up roughly 25% in 2024, the Big Six, if invested in and allocated equally, were up 47.5%. By comparison, small caps as represented by the IWM ETF IWM were up 11.5% and global stocks outside the U.S. and Canada, as represented by the MSCI EAFE ETF EFA were up just 4.3%. Take the Big 6 out of the S&P 500, and the S&P 494 would have gained 16%. Take Nvidia out all by itself and the S&P 499 would have gained 19.8%.
Even more interesting, going back to the market lows of October 2022, the Big Six have gained 145.4%, while the S&P 500 has gained 70.1%. Ex-the Big Six, the S&P 494 would have been up just 48.3% since that low. Perhaps just as interesting, since October 2022, the IWM small caps have gained 36.6%, but the EFA global equities have gained 46.8%. That's almost in line with the S&P 500 less the Big Six. American exceptionalism? Perhaps. Mega-cap exceptionalism? Definitely.
Anyone Else Notice...
- That according to Freddie Mac, the average rate on a 30-Year mortgage for the week ended Jan. 2 was 6.91%.
- That according to the Mortgage Bankers Association, the average rate on a 30-Year mortgage for the period ended Dec. 27 was 6.97%.
- How far away are 7% mortgage rates? If sustained in an inflationary environment, what impact does that have on home prices, demand for homes, and available supplies of homes?
- November Construction Spending hit the tape flat from October. A month-over-month gain of 0.3% had been expected coming off of a robust 0.5% gain from September in October.
- Hedgeye Risk Management's monthly inflation Nowcast has been tweaked higher again. This model that accurately predicted a bottoming for headline consumer price index in September and reaccelerating inflation for both October and November, is now projecting a significant increase in the pace of this reacceleration for both December and January.
- With that, Fed Funds Futures trading in Chicago are now pricing in a 13% probability for no rate cuts at all in 2025 and a 44% likelihood for one quarter-point rate cut. These futures are still pricing in one quarter-percentage-point rate cut in May and another in December, but neither of those projected moves are currently backed by anything approaching conviction. These rate cuts, according to this market, are moving towards the "toss up" category.
Economics (All Times Eastern)
10:00 - ISM Manufacturing Index (Dec): Expecting 48.3, Last 48.4.
10:30 - Natural Gas Inventories (Weekly): Last -93B cf.
1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 589.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 483.
The Fed (All Times Eastern)
11:00 - Speaker: Richmond Fed Pres. Tom Barkin.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings scheduled.
At the time of publication, Guilfoyle was long NVDA, SOFI, AAPL, AMZN, MSFT equity.
