What Sectors are Driving the Bull Market? HD 720p

2 months into 2024, investors are pushing markets further into bull territory. We give the bull market more context for you on this week's Jarvis Update. I'm Brian Dress, Director of Research here at Left Brain, joined as always by our CEO and Chief Investment Officer, Nolan Langford. Nolan, welcome to the program.

Thank you, Brian. It's good to be here as always.

And thank you to all the listeners for being with us. We appreciate your viewership. We'd ask you to like and share the video if you do find these videos useful. It makes it easier for other investors to find them. And also subscribe and hit the bell for notifications. That way you know every time we're out with these videos, and we're out every other week with these. This week we'd love to have you interact with us here in the comments with your thoughts on the market or with an answer to the question, how are you feeling about the economy? Earnings season is coming to a close, and by and large things have looked pretty good. We've got two topics for you as usual. Number one is putting bull market in context. And number 2 is action steps for investors in early 2024. First of all, we'd ask you to sign up for the Jarvis newsletter list. That way you can receive our content to your inbox every Saturday. Last week we were out with our February newsletter in which we argued that Apple and Tesla, two of the biggest stocks in the economy, might be on the chopping block. So check that out if you have interest. Also, our goal is working with clients to help them achieve their financial dreams. Whether or not you currently work with an advisor, We want to be a resource for you to help you reach your goals by helping you make the right moves. Call us on the number below, and for the podcast listeners, that's 630-547-3316. And also, for institutional investors, we've got something for you. That, that's our new and improved Investment Ideas service. Those are our model portfolios, that's 5 of them with dozens of actionable securities that's updated quarterly and backed by our full-length reports written by our analyst team. So Check out the link on the bottom of the screen if you have interest in that. And then we've got one final announcement for you. That's for our client base. We want you to save the date, April 27th this year. That's a Saturday. We've got an event for clients at Morton's in Naperville. That's going to be our annual State of the Union where Nolan's going to share with you his thoughts on the markets. And we're going to be happy to see you guys face to face. It's been a few years, so please save the date of April 27th and we'll be looking forward to seeing you at Morton's. Let's jump right into the market recap. First of all, the market averages were up slightly the last week. S&P was up about 0.2%. The NASDAQ Composite, that's the tech-heavy index, that was up about 0.3%. And then the small-cap Russell 2000 was actually up quite a bit more. It was up about 2.04%. So quite a bit of outperformance from the small caps this week. Good to see. The PCE, that's the Personal Consumption Expenditure Index. Fed tends to look at this quite closely as a measure of inflation. That came out at 2.4% this week. That was just as expected. So a little bit better than the last time we got inflation data. And it's also the lowest reading we've seen since early 2021. So we're definitely seeing some progress against inflation. And by proxy, that means interest rates are going to hold a little bit more steady. With that in mind, 10-year US Treasury was around 4.25% at the time we taped this. And stock investors do seem to be taking it in stride. The fact that interest rates are a little bit higher over the last couple of months. And markets are continuing to go higher. Nolan, any thoughts this week? And do you think macroeconomics are finally off the front page here?

I have no more comments other than the stats you just mentioned. Boy, do I hope we can stop talking about those stats.

Wonderful. Well, let's jump in and we'll talk a little bit more about what we like to talk about. That's individual businesses and the way— ways that we can help clients achieve their financial goals. So let's jump right into the topics. Topic 1 is giving the bull market some context. Nolan, We've got the year-to-date for the first 2 months of the year. We finally got some data in the can so we can start to analyze what's going on in markets. The S&P 500 is up 6.53% for the year-to-date so far. NASDAQ up 6.35%. And then the Russell 2000, again, the small caps, that's only up 0.8%. That's through Wednesday's close, February 28th. Noland, do you have any reactions to those numbers?

Very strong coming off of 2023. I think that surprised most investors. I think most people were looking for a little bit of a lull or giveback. Haven't had any. Really good to see those numbers. It looks like the rally is also broadening. Really good to see a lot of participants, a lot of sectors participating. It is a bull market.

Excellent. I'm glad you brought that up. Sectors, Nolan. So in the S&P 500, there are 11 sectors that make up that index of around a little over 500 stocks. Of course, we wanted to share with you the top 3 performers and the bottom 3 performers of that 11. We'll throw the numbers up on the screen, but I'll say them as well. The top performer this year to date is communication services, up about 9.7%. We've got information technology up 9.2%. So not too surprising. Some of the biggest winners this year have been in tech. What was a little more surprising in the winners category is financials, up 7.3%, despite the fact that a lot of regional banks are struggling. And then we'll look on the worst performing side. So this was good news, the fact that only 2 out of the 11 sectors are down this year. That's real estate down 3.1%. That's utilities, UTS, always makes me think of my cousin Vinny, down 2.03%. The third worst performer is materials, and that's actually up 1.5%. Fairly good numbers across the board, Nolan. Any reactions when we take a look at the sector data?

Well, it's not only the sector data, it's also, it makes sense, it's reasonable. Interest rates are up a little bit this year. The two most interest rate sensitive groups are down, utilities and real estate. Makes sense to me.

And then let's look even deeper. This is where we like to really take a look, Nolan, is we like to look at the individual companies and the individual stocks in the market. I'm going to start with the bad news first and then we'll get to the good news. So the bottom 5, and I'm going to throw a graphic here up on the screen, is Newmont Mining down about 28%. We've got Market Access down about 27%, got Archer Daniels Midland down about 27% as well. Charter Communications down 26% and Paramount Global down 25%. Those are the 5 worst performing stocks in the S&P 500. Any reaction or thoughts or patterns coming out of those, Nolan?

All of those businesses are challenged and the share price reflects it.

Okay. And then we'll look at the flip side as well. Nolan, the top 5 stocks in the market. Nvidia wouldn't be surprising to anyone, up almost 57% this year in 2 months. We've got Constellation Energy up 46%. We've got Meta up 37%, Eli Lilly up 30%, and Tapestry— this one's been beleaguered for a number of years, but actually up 30% this year. Nolan, any comments that you have on the top 5 stocks in the market? The better news—

one of those 5 doesn't fit. Yeah, that's my thought. How did Constellation Energy get in that group? And we just said utilities were down, so We're gonna have to investigate that one further and see what's happening.

The rest of it again, I'm gonna draw a big circle on my paper on Constellation Energy, taking a look at what's happening there. And then, Nolan, so those are kind of, uh, the nuts and bolts of what's going on in the market— the top performers, the worst performers. I wanted to call out a couple of sectors or industry ETFs too that were surprising and on the upside. So we talked about healthcare as we were coming into 2024, and a couple have done pretty well from that point of view. XBI, that's the biotech index, that's up 10% for the year to date. And then the pharmaceutical index up about 6.9%. So outperforming the S&P overall. And then one other one, which I thought was surprising with the fact that we've had a lot of concerns with commodities and energy specifically and the price of those, we've got AMLP, that's a basket of master limited partnerships or, and they're also oil pipeline companies. That's up 9.6%. So we always like to see areas of the market that are outperforming what you might expect. Nolan, any, any reactions or thoughts there?

Now, those are all good news. The first ones that you mentioned, healthcare and biotech, not that big a surprise, at least at our shop. We've been talking about a bounce back here after healthcare was bludgeoned last year and biotech's been bludgeoned for 5 years. There is something going on in pharma. You know, the big pharma companies, they have patent cliffs. So over the next 5 to 7 years, they got billions in sales coming off of patent protection. So we've already seen some biotech deals where pharma trying to refill the R&D pipeline. So I think you see more M&A through biotech. I think this is probably a start of something that's going to be a little bit more significant in biotech.

Okay. And I want to zoom out, Nolan, before we move to the next topic, is we've seen a lot of price action, earnings, a lot of other things going on the first 2 months. Numbers look pretty solid, pretty strong. We've called it a bull market a few times this year already. What are you expecting as 2024 continues to unfold here?

I expect something that we're not expecting.

Okay.

Generally, that's what trips us up. We know we have an election coming later this year. But, you know, the note that I took, you know, after this Q4 earnings call, which 10 is the new 20, that a lot of these companies that were posting revenue growth of 20, 25%, They all beat for last year's number in the 20s, and they're all setting expectations this year at 10. The market seems to be taking it in stride. So what that tells you is I expect a lot more positive earning surprises throughout this year because their companies are resetting the bar lower. Positive reactions. Let's see how powerful the stock moves can be over the next 18 months or so.

Very good, Nolan. With that, let's move to topic 2. So topic 2 is action steps for investors in early 2024. Nolan, we love talking about markets. We love talking about what's going on, themes, individual businesses. But at the same time, what's really important for our listeners is making sure they make the right moves for their portfolio and building their net worth. So, Nolan, the first thing I wanted to bring up was retirement accounts. So before investors and our listeners submit their tax return, they're still eligible to contribute to their IRAs for 2023. So that's one thing I wanted to point out. And then also with respect to retirement accounts, a few other things we wanted to mention and make sure people are thinking about at this time of year. It's a good time to peek into your 401(k)s. You want to think about and make sure that you're funding them properly the way that you want to. We love people that max out their 401(k)s, but to the extent that you're able to allocate to your 401(k), make sure you're doing it the way you want to. Allocation too is making sure that we have investments in the right funds in our 401(k)s to make sure that we make the most of that. And then there's also company stock and then there's also 401(k)s that people may have left at old jobs. So those are all things that we want to take account of with our clients and those that are listening to us out there. Nolan, what are some of the topics on your mind at this time of year in terms of making the right moves for people to build their net worth coming into the new year?

We know staying on top of your financial circumstances are at the top of most people's to-do list in the new year. And so we're still in Q1, so it's a good time to take a look at that. Everything you said, I think, makes sense. The 401(k) at work. A lot of companies have changed the plan over the last couple of years, not just new investment options. A lot of companies have added the Roth 401(k) bucket. So it may be a good time to look to see with your circumstances if that makes sense. You also mentioned, Brian, the 401(k) at prior companies. A lot of our clients are busy, high-profile executives, and a lot of them have switched employers over the last 3 to 4 years. Don't forget, any money that you have sitting in the past employer is eligible to be moved and consolidated. And like you mentioned, Q1, you can still do contributions both for last year, 2023, if you qualify, as well as 2024. And the limits have increased. If you're over 50, it's $8,000 now into an IRA. The other thing I would stress, especially for our executives that work for publicly traded companies, I know Q1 is typically bonus season. Don't hesitate to take a look at that in your investment mix. A lot of our clients end up with excess cash at the end of the year. You add that to bonuses and they can be sitting on a surplus of cash. So you certainly want to take a look at that and see if it makes sense to invest some of that cash. And then finally, restricted stock units and stock options also vest in the first quarter.

Yeah, Nolan, I just want to circle back to those old 401(k)s. We just want to make sure that our clients and listeners don't just move their 401(k) into their new 401(k). Consult with your advisor before you make that move. We always want to look at a rollover to an IRA. That's generally the way we want to proceed with things. I just want to make sure that we're explicit about that and people don't make a move without consulting their advisor. So, Nolan, thank you for those answers. And then there was one other topic I wanted to cover, consolidating what you've got going on. There's a number of things. Sometimes people have old life insurance policies. And really what we want to talk about today is old annuities. So, Nolan, I wanted to ask you this and let you explain this to the folks out there. Why are we so adamant about we want to review annuities today given current economic and market conditions?

Well, anytime you have something that you put money to and it's a big commitment, you certainly don't want to just put it there and leave it. Every now and then it does need to be reviewed. And so annuities as a general course should be reviewed. The reason that we're stressing them now is interest rates. Now, annuities is a contract. Generally, it's going to be an insurance company money, and it's going to guarantee you income at some point in the future. And that income's based off of interest rates. All these annuity policies, the time they were issued, uh, in the contract, there's an interest rate generally set at what interest rates were during that time. And if we think about the last 10 or 15 years in this country, interest rates at one point were zero, and they've been pitifully low for a good part of 10 or 15 years. Finally, in the last 12 months, interest rates have risen And just like a homeowner would do if rates dropped from 7% to 3%, everyone would rush to refinance their home. Well, the same thing's happening right now in annuities. If you have one of these contracts that were written when interest rates were 1% or 2%, and now the newer versions are at a much higher rate, 4% or 5% or 6%, you can also refinance. So it's a really good time to take a look at them, particularly if they're contracts that you've owned for 3 years or more.

Want to make sure that our clients and our listeners are looking at the details of what, what they've got going on. It's important that everything gets reviewed on a periodic basis, and that's, uh, part of what we're trying to do and, and stress for the early part of this year. So, Nolan, thank you for being with us. We want to thank the listeners for tuning in once again. Uh, we'll see you again next time.