We hope that you had a good week and were able to profit from the various markets that continued to move higher.

If you are following any of the MarketGauge models, including but not limited to the ETF Sector Plus, Profit Navigator, GEMS, Small & Midcap Earnings Growth or a few others, then hopefully this recent period has helped us earn even your confidence that the risk management and momentum drivers are working well and leading our subscribers to above average performance.

The continued move higher.

Stocks finished the week broadly higher after a mid-week pullback. The rally in stocks continues, as we will illustrate below, with new all-time highs this past week in the Dow and the S&P 500. The S&P was up 0.86% for the week.

The S&P 500 has risen for six consecutive weeks and nine of the past ten.  @CyclesFan points out the S&P 500 has had six other six-week winning streaks in the past decade. The seventh week has been a coin toss, with three instances closing higher and three closing lower.

The Nasdaq scored a fresh three-month high and ended the week up 0.22%.To the market’s surprise, semiconductors had a negative week as we describe in the Big View bullets below. But it was the small cap stocks and the Russell 2000 that stole the show this past week, up 1.98%. See IWM charts below:

Most surprisingly, some of the other asset classes performed even better than stocks.We will go into more detail shortly.

Global easing.

The European Central Bank (ECB) delivered its first back-to-back rate cuts in well over a decade in the wake of several cooler-than-expected European inflation reports. This helped propel the US dollar to gain strength as the US economy continues to show strength despite the global growth worries that keep resurfacing (additional charts are forthcoming).

Strong earnings season is upon us.Recession fears abate.

Since the beginning of the year, it seems that we have heard nonstop from the doom and gloom market predictors that corporate earnings would begin to decline and that we would eventually feel the shock (major sell off) of their grim prognostications.They have been proven wrong time and again by a resilient and growing US economy.

Given that this is an election year, coupled with a Fed easing campaign, high stock and corporate bond liquidity, low defaults on high yield paper and lower trending inflation, it is not surprising that most asset classes (ex the energy sector), continue to find bullish buyers and surprisingly big beats on corporate earnings.(More on lagging sectors shortly).

This past week, the banks (and financials) came alive as most of the early big banks not only had good earnings but beat by a wide margin, well above top-line revenues as well as net earnings per share.

With equity multiples a bit stretched right now and corporate bond spreads tightening, many investors are beginning to use options and other hedge instruments to protect their gains going into the election season and end-of-year rebalancing.

Yet, many investors, including our own Mish, recently extolled the 2-year birthday of the new bull market and if historians are correct, we may still be in the early innings of the “bull market” which could run for a few more years.

My conservative nature says that the markets should be concerned given the high levels of debt, lack of interest by foreign entities to invest in our US Treasury market, an aging population and the onset of automation.We could be in for some turbulent and more volatile markets in 2025 and beyond.

Continued soft-landing?

The latest Bank of America Global Fund Manager Survey shows the odds that a future (2025) soft-landing may have slightly decreased. But the hard landing respondents faded just as much, falling into the single digits for the first time since June, with just 8% seeing a recession in the next 12 months.See chart below.

A great 12 months for the equity markets.

Would it surprise you to know that since October 1, 2023, the S&P 500 is up 37% and the NASDAQ 100 (QQQ) is up 38%? I recall attending an investment conference last October and many of the stock publishers as well as investment managers sharing their thoughts that we could see a bumpy road in 2024, although all seemed to agree that it was an election year and that might help the markets stay buoyant.

Several of the market experts I listened to or met with at the conference also came out with negative market concern this past summer convinced that we might not see the markets go any higher than 5500 by year end.Several issued warnings to “get out”. (in case you are not aware the S&P is near 6,000 as of last Friday’s close).   

We are fortunate at MarketGauge to have several risk managed investment strategies that have stayed invested for most of 2024.Several of these have participated in most of the market’s upside. One of these is Profit Navigator. If you would like more information on this investment strategy and several others, please contact Rob@MarketGauge.com for additional information.

It really has been a good 12 months.See the chart below on the S&P 500:

I have read many articles on why the few mega-cap S&P 500 stocks (the “MAG 7”) are fueling the market, the following chart shows that this may no longer hold true.The stock market has broadened considerably.

Additionally, the market breadth of the NYSE, as measured by the advance/decline line representing the issues that keep advancing versus declining, shows a healthy, broad and fully participating stocks listed on the NYSE.These are generally large cap, market leaders including financial stocks.At the moment this chart shows no divergences and ammunition on why the market could easily move higher.See chart below:

A few important areas of the market (S&P 500) have not been participating, UNTIL LATELY.

There is not a week that goes by that I don’t read several economic writers and analysts suggest that the market is “stretched and a bit frothy”.While this may be true for a few sectors (technology, industrials, utilities to name a few), there are a host of “risk-on” sectors that are not demonstrating the same kind of exuberance in earnings and price movement as yet.Perhaps these will awaken over the next few months.

They are all important members of Mish’s Economic Modern Family and it will be interesting to see if they rotate into a leadership role, especially Transportation stocks which, believe it or not, have not confirmed the “Dow Theory” as of yet.See charts below:

It’s mostly about earnings.

In several past Market Outlook columns, we have cited several reasons the market continues to move higher.To recap what we have stated in the past, we offer the following points:

1. Lower trending inflation;
2. US monetary policy, which has created excess liquidity, is also being derived from the current. administration’s bills which have extended trillions in corporate and union pension fund help.
3. Federal Reserve interest rate cut; and most importantly,
4. Higher corporate profitability and earnings (some as a direct result of the past 3-year inflation spike and being able to raise their prices). These surprise earnings beats have been able to support higher stock multiples and stock prices.

Likewise, many analysts believe that corporations have taken advantage of pricing power and that, on its own, has contributed to a big part of the inflation we have experienced over the past few years.The following chart illustrates this:

Profits vs. inflation. "Rising corporate profits have been a key driver of US inflation, according to Bloomberg."

Can good earnings continue?The earnings for the mega-cap Magnificent 7 should be well above expectations for the most recent quarter, as was witnessed by Netflix this past week.However, analysts also are suggesting that earnings expectations may disappoint in 2025 for all but the largest companies (Magnificent 7).See below:

Mag-7 vs. Other 493. The Mag-7 are expected to report earnings growth of 18.1% YoY in Q3 compared to just 0.1% growth for the Other 493. This gap is expected to narrow in the quarters that follow.

Other asset classes remain on a hot streak.

This week’s column is about various assets (and market cap areas as well) that have been on bullish runs recently as well as most of the year.It might surprise you to know that while the stock market has done very well for 12 months, the following alternative asset classes have actually performed better (since October 1^st 2023):

We illustrate these moves by the metals in the following charts:

Gold is on track for its best year since 2007. It has quietly outperformed stocks, up +30% YTD, while the S&P 500 is +23%. Friday, Gold made a fresh all-time high.

This week also saw a breakout in Silver and silver mining stocks, which bodes well for the metal going forward.See charts below:

Is this a surprise? Not to us!

First off, our own market and economic guru Mish, has been pounding the table since the summer of 2023 for investors to buy Gold and Silver along with their respective miners.We have numerous recorded appearances by Mish on National TV on shows like Fox Business with Charles Payne where she told him (and the audience) that it was time to load up on the shiny metals during late 2023 and early 2024.  Let us know if you would like any of Mish’s replays that discuss this, and we can forward them to you.

Some of the reasons Mish and our algos have been invested in the metals are these facts: inflation remains elevated, the economy is good, monetary policy is expansive, interest rates are trending down and investors are diversifying their investment thesis by going into alternative asset classes including commodities, bitcoin and international as well as emerging markets. Additionally, we are witnessing significant geopolitical risk around the world and that is helping to push Gold and Silver higher.These factors will continue to be strong catalysts for the metals market moving higher.

What is a surprise to us, however, is the fact that these metals are moving up (and their stocks) in the face of higher trending interest rates (10-year and longer) these past few weeks and a US dollar that has been on a move higher as money pours into our country from the global markets. Typically, a strong US Dollar would have a dampening effect on the metals markets.Given the recent strength of the US Dollar AND a rally in the metals only demonstrates how powerful the move in gold and silver lately has been.

Here is a chart of the recent strength of the US Dollar:

What is in store for the rest of the year?

We are not in the prediction business (as many others claim to be). However, we remain aware that we are in an election year and are about to enter the best period to be invested in stocks seasonally.That makes us more optimistic about staying invested in the stock market AND also in the metals, mining and other alternative asset classes that are participating in this current bull market trend.See charts below describing the positive bias that continues:

Also, the internal technical picture of the market, as shown (above and below), is extremely positive for the stock market, at least for the next two months, if not further out.See chart below.

New highs. On Monday, “the net percentage of S&P 500 members hitting 52-week highs reached the highest level (22%) since March ... Forward returns for the S&P 500 have consistently been positive after strong readings in net new highs.”

We hope that this week’s overview provides some additional information, and inputs to help you in your investment activity as we enter the last two months of the year.We plan to introduce some new areas for this column, including Fun Facts, in the near future. Given the length of this article we did not want to take up any more of your time in this week’s column.

More By This Author:

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The Door Is Open, Time For The Fed To Act