Broker Check

Reasons for Investors to be Thankful

| November 20, 2023

Editorial note: we’re taking a break for Thanksgiving; the next post will be live on Dec. 4, 2023.

It’s been noticeable recently how striking the continued level of cautiousness and general bearishness out there is. To be fair, we understand the primary driver of this cautiousness has been the overall sense of gloom around a handful of factors, including:

  1. Geopolitical risk around Russia, Iran, and China
  2. A rising federal debt burden
  3. Retirement of baby boomers and poor demographics
  4. An overall view that inflation would linger around 4%
  5. The risk of inflation accelerating
  6. The looming “commercial real estate crisis”

This is timely because someone asked recently if I’ve only been bullish because it’s good for business. The question is slightly ironic because our research is (and always has been) based on data evidence, not bullishness.

The point of this commentary is to confirm the peculiarity of how entrenched bearish sentiment remains, especially as we are in a seasonally positive portion of the calendar and the S&P 500* is up more than 15% this year, as of this writing.

I’m also struck thinking back on how investors’ default stance has been bearish for stocks and the overall market going back years. Yet, since 2009, the S&P 500 produced positive gains in 13 of those 15 years.

This bearish viewpoint reared its head again recently when many pundits called the market bounce that began on Oct. 27, a “baby rally”:

You can even see this sentiment in the recent equity options trader data. Traders have turned over more puts than calls for only the second time in the last five years, indicating a fight against the rally. As we said last week, that’s a contrarian bullish indicator:

And then last Tuesday happened. That’s when the elephant in the room – inflation – was revealed to be cooling faster than expected. It ignited a face-ripper rally that day, once again affirming our data dependent approach and confirming positivity for the remainder of this year.

The 0.30% expected month-over-month increase for the October consumer price index vastly overshot the actual 0.23% rise. Even more surprisingly, the days leading up to the report saw consensus leaning even hotter as many forecasts called for a 0.38% CPI increase.

Furthermore, the dampened headline reading came in the right underlying places. Shelter slowed to 0.30%, the slowest reading all year (which we expected). And vehicle prices continued to tank, both new and used:

That good news on inflationary hotspots slowing down would’ve been enough to ignite a stock rally. But the bigger story is that only seven of 31 core CPI components rose in October:

Could the horrific run of inflation be over? That’s mind-blowing.

We think this will continue to change both the Federal Reserve’s view of inflation’s stickiness as well as the generally bearish market narrative. When you combine our data-backed thesis with 10-year Treasury yields continuing to decline, it produces the perfect recipe for a year-end rally, perhaps one that accelerated with the face-ripper last Tuesday.

Macro-level Support

That was a lot of data (and a good amount of back-patting too). Now let’s support it with three macroeconomic reasons the October lows were likely the lows for the year and supportive of a rally to end 2023.

Interest Rates

The biggest macro concern is interest rates which have been a huge thorn in the stock market’s side since the July highs. Thankfully, rates have pulled back sharply:

But how do we know yields won't shoot back up? It’s a valid concern.

Treasury Clarity

Well, the Fed is likely done hiking rates due to Goldilocks growth and falling inflation. Also, fears of a 10-year Treasury supply glut eased after the Treasury Department announced it would favor short-term bond issuance in 2024. Generally, that’s good news for stocks:

Additionally, shorting long-term bonds worked great this year. But it’s a crowded trade now and yields are falling as institutional short positions are closed.

Finally, long-term interest rates have been historically stable when inflation runs around 2%-4% (we’re at 3.2% year-over-year now). Inflation would need to exceed 6.0% before causing a big sustainable jump in 10-year bond yields:


After turning modestly negative this spring, year-over-year 12-month forward earnings for the S&P 500 have reaccelerated to 3.6%:

Additionally, earnings surprises to the upside stand at 6.9% this past quarter as earnings season quickly draws to a close:

Remember, stocks follow earnings. Profits are the time-tested fuel for long-term growth.

Importantly, the S&P 500 is averaging 13.0% gains in the 12 months following bottom-quartile 12-month forward earnings growth as investors anticipate further profit recovery. In other words, when earnings turn from down to up, stocks historically follow suit:

These three reasons are the data drivers needed to lift one of our favorite data points – MAPsignals’ Big Money Index (BMI). It’s a 25-day moving average of “big money” professional investor buys versus sells.

As our readers know, on Oct. 9, the trusty BMI plunged into oversold territory. Fast forward about a month and a half, and the S&P 500 has gained 4.8% since Oct. 9, and more than 9% since Oct. 27’s lows, even after October’s spooky volatility. Unsurprisingly, the BMI lifted from oversold territory:

And selling quickly (and completely) dried up:

These are reasons for investors to be thankful!

Happy Thanksgiving!


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* The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

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