Welcome to the best six months of the market, plus Dow Jones index changes, yield investors, and screen time
The Sandbox Daily (11.7.2024)
Welcome, Sandbox friends.
Today’s Daily discusses:
welcome to the best six months of the year
changes come tomorrow for the Dow Jones
good news for yield investors
screen time
Let’s dig in.
Markets in review
EQUITIES: Nasdaq 100 +1.54% | S&P 500 +0.74% | Dow 0.00% | Russell 2000 -0.43%
FIXED INCOME: Barclays Agg Bond +0.76% | High Yield +0.43% | 2yr UST 4.197% | 10yr UST 4.328%
COMMODITIES: Brent Crude +0.85% to $75.56/barrel. Gold +1.46% to $2,715.3/oz.
BITCOIN: +0.24% to $76,038
US DOLLAR INDEX: -0.71% to 104.345
CBOE EQUITY PUT/CALL RATIO: 0.88
VIX: -6.58% to 15.20
Quote of the day
“We suffer more often in imagination than reality.”
- Seneca
Strongest six months of the year
When analyzing all six-month return windows for the S&P 500 dating back to 1928, it is the November-to-April window that has been strongest for stocks, while the May-to-October window has historically produced the lowest average and median returns.
If stocks exhibited tremendous strength during a traditionally week time over the summer months, imagine how the market might perform when they’re supposed to do well!
Source: Piper Sandler
Changes come tomorrow to the Dow Jones Industrial Average
Last week, S&P Global, the company that owns the Dow Jones index, announced chipmaker Nvidia (NVDA) will replace its rival Intel (INTC) on the stock index, while the paint company Sherwin-Williams (SHW) will tag in for chemical giant Dow (DOW). The change is effective prior to trading tomorrow (November 8).
On the surface, the swap makes a lot of sense. Sherwin-Williams for Dow are two similar Materials stocks in terms of valuation and market beta, while Nvidia taking Intel’s place represents a recognition of the world’s semiconductor industry leader.
The interesting angle on these index reconstitutions comes from the performance perspective.
The Ned Davis chart below shows stocks that exit the DJIA index have declined sharply over the prior year, on average, and continue their slide for a few months before sharply rebounding. In other words: “DJIA expulsions have been followed by washouts” and often act as contrarian buy signals.
The Dow Jones Industrial Average is comprised of 30 companies in which the committee tries to best represent key parts of today’s economy and stock market.
Source: Ned Davis Research
Interest rates have been drifting higher. This is good news for yield investors.
If Trump's campaign promises become reality, higher yields may be the end result.
Yields have jumped over recent weeks reflecting expectations of both stronger economic growth under Trump and wider deficits that may fuel both interest rates and inflation higher.
When comparing the U.S. Treasury curve today versus this time last month, rates are up everywhere except the front-end. The 10-year U.S. Treasury had risen as much as 75 bps from their local lows just prior to the September FOMC meeting.
Against a backdrop of higher yields, yield investors remain excited about the opportunities ahead.
In the graphic below, J.P. Morgan captures this relationship between bond prices and interest rates in rather simple mathematical terms, showing the asymmetric risk/reward opportunity in bond returns at these higher interest rate levels.
Assuming a parallel 1% move in interest rates higher and lower from current rates, here is how different sectors across fixed income would perform.
For example: a 1% rise in rates would cause Investment Grade Corporate bonds to fall just -1.8%, while a 1% decline in rates would create a positive total return of +12.1%.
This asymmetric risk/return for bonds is why so many bond managers are giddy about the forward prospects in credit and interest rate sensitive instruments.
Source: Eaton Vance Monthly Market Monitor, J.P. Morgan Guide to the Markets
Screen time
The headline reads: “Most teens spend around 25% of their waking hours using screens.”
Wow!
This is not healthy behavior for our future generations, as studies have proven to show that screen time leads to symptoms of depression, anxiety, and isolation.
This amazing digital age of technology unfortunately is accompanied with downsides like behavioral problems, eye strain, memory loss, and diminished academic performance. Not good.
Source: Chartr
That’s all for today.
Blake
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Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.
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