Stocks Bounce Back on Broadening Out

Jeffrey Buchbinder:

Hello everyone, and welcome to another LPL Market Signals Podcast. Jeff Buchbinder here, your host for this week with my friend and colleague, Adam Turnquist. Adam, how are you today?

Adam Turnquist:

Hey, not too bad. How are you doing today?

Jeffrey Buchbinder:

Doing great, thank you. It is a holiday shortened week for us, and hopefully all of you listening. So we'll just start by saying happy holidays. I think that's the first time I've said that so far. So we're going to get started on our holiday shopping very soon. I think the sales have probably been around for a few weeks, but I'll admit I have not taken advantage of them yet. So we got a great show for you today. We're going to talk about, well, first the strong market last week. And Adam, I'm hoping you're going to explain why we were up every single day last week and why small caps did so well. So that's first then chart check. I guess there was a couple of themes in the chart check segment today with Adam, but certainly one is market breadth.

Jeffrey Buchbinder:

So we'll hit on that. Next, some historical perspective on market concentration. There's been a lot of talk about this, you know, with the mega cap tech names led by Nvidia doing so well in recent years. And you know, tech becoming such a huge percentage of the S&P 500. We'll try to give you some perspective on what that might mean going forward. And then we'll of course close as we always do with the week ahead preview. And I think this week is really full of data, but the fact that it's crammed into just three days makes it even more dizzying. I would say buckle your seat belts on Wednesday because that's a busy, busy day. So market recap. We got five-straight up days for the S&P 500. Adam, why the heck did the stock market do so well last week? I have my thoughts, but I want to hear what you think.

Adam Turnquist:

I think rotation, rotation, rotation last week. We had quite a bit going down cap, actually, you can see with the Russell 2000. A big part of that, of course was the banking space within the Russell 2000. That's the biggest sub-industry group waiting. So a big rally there. But it was definitely a risk-on week. Above average volume across the major indices as well. So like to see that when there's buying pressure, very broad. The S&P equal weight did quite well last week and outpaced the cap-weighted. So just more of a risk-on environment. And I think the fact that we got through the big event of Nvidia earnings relatively unscathed, even though they maybe disappointed a little bit on the guidance, it did not disrupt the momentum in the market and continue to see that throughout the week last week.

Jeffrey Buchbinder:

Yeah, I was particularly impressed with how well the market digested, you know, the concern about rising rates, right? We had a disappointing Treasury auction last week. We've got more Treasury auctions this week. So that was good. We had some weakness in the mega cap tech space. In particular, Alphabet, of course, parent company of Google talks of a breakup and potentially, you know, government forcing them to sell the Chrome browser business. So that certainly weighed on Comm services, which was the weakest performer last week. Amazon was another weak performer too, so you had some weakness in mega cap tech and yet the market not only did well, did really well, and as I mentioned, was up all five days. We also digested some Fed speak, and I guess in general, the market is getting a little less confident in a rate cut in December, so we might have to wait until January.

Jeffrey Buchbinder:

We'll have to see. It's not quite a coin flip, so I think the latest odds are about, let's call it a 40% chance of a cut. We'll have to wait and see. But nonetheless good week for markets. Certainly, you know, as you said, Adam, the equal weight doing well implies pretty good breadth. Staples, we had some defensive leadership. Staples up over 3% helped by Walmart. Very well received results from them. Although Target took a little bit of the bloom off the rose with their disappointing results. We had a good week for materials and industrials. There's kind of the Trump trade cyclical value sectors maybe benefiting from a little bit more economic growth. Maybe a little bit more deficit spending, although the Treasury secretary pick, Scott Bessent, maybe is not so much of a deficit spender as some other potential picks might have been.

Jeffrey Buchbinder:

So the the bond market is cooling off a little bit. By the way, it's Monday, November 25, 2024 as we're recording this. So we got a little bit of a sell off in bonds, you know, late last week, and now we're getting a little bit of a rally back in bonds today. And then the you know, the U.S. continues to lead global markets. So in terms of bonds, I mean the Ag was up marginally last week. Treasury's up marginally last week and like I said, off to a good start this week. How about on the commodities front? Adam and I know gold had a really good week last week, but is selling off sharply today. What do you make of the move in gold?

Adam Turnquist:

So it was kind of a buy-the-dip moment for gold last week. We had the dollar very overbought. You can see the dollar index there just below 1.07. That's a major area of resistance. That marks the upper-end of this range overbought into that overhead resistance, gold oversold into support. Now that's a pretty good recipe for a bounce, and that's really what we witnessed last week with gold coming off the lower end of its rising price channel. So continuing to move higher, I know today and overnight, gold traded a little bit lower, but certainly the trend is up in that buy-the-dip crowd came in as expected last week. And then WTI crude oil finally notched a weekly gain. You can see they're holding above 70, making marginal technical progress, though still in a downtrend below the declining 200 day moving average, but holding above support kind of in the $65 to $68 area. Of course, part of that is just a geopolitical risk premium in oil. We saw tensions flare up again with Russia and Ukraine, some of those geopolitical risk tensions, abating a bit today just with some of the news of a potential ceasefire with Hamas. We'll see how that plays out. But still a lot of work to do before we start talking about a bullish technical setup for crude oil or WTI I think at this point.

Jeffrey Buchbinder:

Yeah, that's another good thing about the market's resilience last week because some of those Ukraine-Russia headlines are pretty scary, needless to say. So good that the market has you know, absorbed that news and certainly the, you know, potential ceasefire in Israel is part of that story. The dollar, actually, by the way before we get to our charts is the topic of this week's Weekly Market Commentary, which you can find on lpl.com, authored by Dr. Quincy Krosby. So take a look at that. The dollar is really, really important. You know, not just in terms of, you know, trade flows, but in terms of the investment returns that U.S. investors get on overseas investments. So kind of a perspective, you know, overview of the drivers of the dollar in that commentary. So Adam, let's get to the charts. So, you know, broadening out or more breadth, I guess is the first theme. So let's start with the S&P 500.

Adam Turnquist:

Yeah, it's been broadening out really since that election day rally. You can see a price gap there on the top right of this chart, nearly off the chart here, for the S&P holding above the price gap. Now, that's important from a technical view because if we start falling below that gap level, that would suggest a failed breakout and open the door for some further downside. And a lot of times these gaps tend to get filled over the coming days so relatively quick. The fact that it's not, that's usually a bullish sign that this rally will continue. The level we are watching and continue to watch is 5,865. That's the price gap. You now have resistance near 6,000. There's a closing high, I think at 6,001, and then an intraday high just above that. So getting close to the upper end of that channel, though not really overbought.

Adam Turnquist:

When we look at momentum indicators such as the relative strength index, RSI, on the bottom panel. And that's been really interesting because normally when you break out to new highs with strong momentum, you actually want to see your momentum indicators reach over bot levels. And we really haven't had that widespread overbought reading yet on RSI. Can call it a divergence, I guess, with price making higher highs and that indicator not getting back to some of those overbought levels, but not necessarily a bearish sign, but maybe due for a little bit of a pause here. Let some of these gains digest and then make the next move higher, I think.

Jeffrey Buchbinder:

Yeah, I like seeing that bounce off the 20 day and certainly we're in a good seasonal period as you will show us in a moment. So next a look at breadth.

Adam Turnquist:

So, yep. Here's a look at on the top panel, the percentage of S&P 500 stocks above their 200 day moving average. And you can see we're not expanding to new highs here. A little bit of a concern because we're getting another one of those deviations with the S&P continuing to move higher. But breadth, it's hard to complain about when nearly three quarters of the index is above its 200 day moving average. Now, technically the most simple definition of an uptrend is price above a 200 day moving average. So the fact that nearly three quarters of the S&P in an uptrend, certainly a good sign. And then we did see some new 52 week highs on this latest rally higher. That bottom panel just shows new 52 week highs versus 52 week lows. And there was a big spike earlier this month with I think 20 plus percent of the index making a new 52 week high. We haven't seen those type of levels since 2021. So good to see that expansion. It's not just a few names that are breaking out, it's the broader market in general that does speak to the sustainability of the bull market in this latest rally.

Jeffrey Buchbinder:

Yeah, this probably supports a rotation into value at some point. We'll see if it's sustained. But for value to start to catch up to growth, we really need more stocks to participate. When you have a mega cap growth led rally, which of course makes up such a big piece of the S&P 500 it's really hard for value to keep up. So that's certainly something to watch. Turning to sectors. I thought this was interesting. I have a theory as to why this is, but tell me what this is telling us, Adam, in terms of breadth by sectors.

Adam Turnquist:

So we look at the S&P 500 at a stock level, how many are outperforming the actual index, and then we look at it and break it down by sector here. And you can see financials, two thirds of the financial sector actually outperforming the broader market. You can see on the right there only about 37% of S&P stocks beating the tape. And even though financials are not leading on an absolute return basis by the sector, they're certainly participating in really leading the market here and picking up some slack, I think, from some of the tech weakness maybe in the semiconductor space, but very cyclical-oriented market right now. You can see Industrials, they're 44%. Consumer discretionary, 40%. So the leadership you want, when you're getting close to new highs. Of course, utilities are in there as well. I think that's a little bit of an outlier, maybe an asterisk there given its AI theme that started to develop. And we saw some pretty impressive performance there. But underneath the hood, the market looks pretty constructive here. I got to hear what your theory is though as well on the gaps in some of these sectors.

Jeffrey Buchbinder:

So some of these sectors are driven more by idiosyncratic factors and some more common drivers, right? And so banks, generally speaking, I think banks are going to move together on macro factors, maybe more than some other sectors. But you could say the same thing about, you know, real estate moving on interest rates or energy moving on oil prices, right? I think there's more idiosyncratic risk in the industrial sector, for example, right? Just more varied business models. Probably same in tech and in healthcare too, right? Pharma and healthcare services are very different, for example. So yeah, I think you want to factor that in when you're trying to interpret this data, but there's no doubt that the financials run has been strong and the fact that it's been accompanied by strong breadth is certainly encouraging.

Jeffrey Buchbinder:

I would just argue you that the chances of being right and making a financials call maybe are higher than some of the other more, you know, the sectors where you have more dispersion, I guess I'll say. So take that for what it's worth. So I alluded to the seasonality being very, very favorable here. Certainly this is getting a lot of attention in the financial media, Adam, and so I'm glad you put this study together to look at the actual numbers. I think this week is quite positive generally, but you looked at it from from Thanksgiving through year end.

Adam Turnquist:

Yep. And it's a pretty good year or pretty good next six weeks. Historically, we know that we're in the best six month period, the best two month period, November, December. But now when we look at Thanksgiving to year end, you can see the average return going back to 1950 for the S&P 500, up 1.8% positive 70% of the time. And just to put that in perspective, we looked at all six week periods for the S&P from 1950 leading up to now, and the average return there, 1% higher only 63% of the time. So we'll call it above average returns, above average positivity rate. And look, we got really good momentum as well going into year-end. So more evidence that momentum begets momentum, I think we could still be in for a little bit of a year-end rally here.

Jeffrey Buchbinder:

Yeah, I mean, you told us this back in July, you know, when we were looking at all these historical studies about strong starts to year, what does it mean for the second half? Did the same thing in October looking at this first nine months, right? All of these studies that we did pointed to more gains and no guarantees, but they all pointed to more gains. And that is certainly what we've gotten now. Now, of course, the logical question is sentiment too stretched, right? Are we getting a little bit over our skis here? So you know, in addition to a breadth or a sentiment measure that you like to look at, you've you found this nice story here about the duct tape banana to maybe shed some light on on where we are in terms of sentiment.

Adam Turnquist:

Yeah, so we'll start with the one on the left, and that's the AAII Bullish Sentiment survey, and they pull all of their members. Are you bullish, bearish, or neutral on the market over the next six months? So we have it outlined in green. The bullish sentiment came down a little bit down to 41%, and bearish sentiment ticked up a little bit, 33% That's just above average bullish sentiment for perspective, going back to the late eighties on average that AAII data 38%. So a little bit above average. When we look at the spread between those, that's coming back in line with its average. So I think some of the froth worked itself out of the market coming into the election. There was some concerns there when you look at some of the other sentiment data. But I think for the most part, you can see some signs of froth and as I highlight here, the banana that sold for $6.2 million. I like the headline that he's going to eat the banana, which I would hope if you're, maybe, I don't know how long it would last or how duct tape would protect it, but it's maybe not the shoe shine boy stories of the old days, but maybe this is the new shoe shine boy here with bananas selling for $6.2 million. And certainly you see these headlines and you start questioning, okay, how much more does this rally have to go? But here we are.

Jeffrey Buchbinder:

Yeah, I'm old enough to remember a time when I got stock picks from taxi drivers. That actually happened to me once. So clearly in the late nineties, sentiment got way over baked. We might be getting to that point now. I mean, this is obviously crypto-related because that's, you know, where the buying came from. But yeah, something to watch. There's certainly segments that are maybe getting a little bit overheated that we have to watch. And maybe that's part of why you saw mega cap tech start to show some cracks here. At least in performance. The fundamentals are still fine, but performance last week certainly we saw some cracks in mega cap tech. So let's go to small caps. This is an area that's getting a ton of attention, Adam, as a Trump trade. But at the same time it's interest rates sensitive. So what are we seeing in the charts?

Adam Turnquist:

Finally, some excitement here in small caps. It's been a lot of fits and starts over small caps. They had a good rally, for example, in July. Everyone was very excited. They're going to start leading the market. And then of course, that fizzled out. So now we're actually making some progress here. This is the S&P 600 small cap index. Finally getting into record high territory after about three years clearing those 2021 highs right around 1,433. Got overbought on the initial breakout and constructively, we came back right to that 20 day moving average right near the price gap. And that's where buyers stepped up, defended that support level. I think that's a very good sign. Momentum looks good, breath looks good. Here's where I get a little bit questionable in terms of the leadership though. When you look at the bottom panel, you have the S&P 600 versus the S&P 500.

Adam Turnquist:

So as that ratio chart moves lower, that's indicative of the S&P 500 outperforming. That's been a trend for the last couple years here. And it is not quite to the point. Technically, you can make the case, this is a new uptrend forming, of course, that would be powered by small cap leadership, but we're very close. You can see as we highlighted right at the upper-end of that channel, right around the 200 day moving average. I think you need to see a higher high here and the reversal before you get too excited about small caps leading. I think the neutral view makes sense here, and you kind of wait this out to see if you get the reversal, but not quite there yet.

Jeffrey Buchbinder:

Our asset allocation committee is still neutral on small caps. You know, the interest rate sensitivity I mentioned is one reason not to get too excited. And then certainly, Adam, your technical take is another, another reason also worth noting, this is the higher quality small cap index, the 600 from S&P as opposed to the Russell 2000 which has a lot more unprofitable and smaller small cap companies. So let's go to semi. So, you know, it was Nvidia week last week, of course, as you mentioned. I mean, the numbers were were great by all accounts, but the expectations were just maybe a bit higher than what we actually got in terms of guidance. You've been saying that software looks better than semis for a while, so I assume that's still the case based on what we've seen over the past week or so.

Adam Turnquist:

Yeah, absolutely. And the software space, if you have to own tech, that would be where the technicals would point you. That's where you get your relative strength, because semiconductors are struggling, as the headline here suggests that the SOX semiconductor index has not made a new high since the summer back in July. And it's really struggled with this area of resistance near these prior highs here. Some of the August highs. These relief rallies have not made it through that resistance level. If you step back, it starts to look like a head and shoulders top formation. Now, I'm reluctant to call it that because we haven't broke through the neckline, but it's a big test for bulls this week. You can see that longer term uptrend that goes all the way back to the October 2022 lows that is being tested. We've already dipped below the 200 day moving average the last couple times we got down here,

Adam Turnquist:

bulls came in, defended that uptrend. If there's no longer buyers or demand coming in at that level, I do think it opens the door for a retest of maybe the September lows or even the August lows. That would be a call it a 10 to 12% downside risk if to get back down to those August lows. But I think you also have to realize that's the neckline of that head and shoulder. So if you break the neckline, that would be the call to make for a top, because a lot of times how these play out, you have these big rallies of outperformance, and then you can really consolidate sideways until the uptrend resumes. And I think that's probably the story here for semiconductors. I don't think you can make the case it's a broken story or it's the end of the AI theme that's really not playing out.

Adam Turnquist:

I think it's just more of a consolidation phase. Some of the expectations need to get back closer to reality, and I think you can see that with examples like Nvidia earnings within the SOX index breath deteriorating as well in that middle panel. Look at how many of them are above their 200 day moving average and only just over a quarter as of yesterday in the SOX index. And then last but not least here, the big change that we've witnessed technically is really on the relative basis. You can see this bull market was led by semiconductors. That ratio chart of the SOX versus S&P 500, clearly higher and consistently higher for the last couple years that started to roll over. And now we're making new year-to-date lows here on that ratio chart. You can see we're below a declining 200 day moving average. Technically that suggests don't expect semiconductors to lead this market anymore. The good news, though, is that other areas like financials, industrials, and some of these other more cyclical areas are kind of picking up the slack from the weakness here in semiconductors.

Jeffrey Buchbinder:

Yeah, and the semiconductor fundamentals are still quite strong. You alluded to that when you talked about the AI theme still alive and well, I mean, the big tech names are guiding to 25% CAPEX increases for next year and higher. So it's still a good theme. And these stocks we think can continue to work fairly well in 2025. But we are not making a call that they're going to outperform as you can see from our neutral tech weighting. And if you have a neutral tech weight, you like software more than semis, and that's basically saying you're overweight, software underweight semis. So certainly following the lead of your technical work. Adam, you you put on your fundamental cap though for this one. So you know, broadly, this is a lot of Nvidia chips obviously, but broadly semiconductor sales are up really strongly.

Adam Turnquist:

Yeah, and it's interesting to look at the cycle play out here and the cycle when we look at global chip sales year-over-year turn positive back in November of 2023. And we wrote about that back in, I think January when we started to see some of the underlying strength in semiconductors as well. And you can see here the latest data, this is from the Semiconductor Industry Association, or SIA, it's up 23% year-over-year, 166 billion in the third quarter on a quarter-by-quarter. That was up double digits as well. So no signs of a slowdown in chip sales. And of course, a big part of this is Nvidia, but it's not just the GPUs, it's traditional semiconductors as well that are all baked into this data. But you can look at some of these other cycles when they turn positive and the positive cycle, the upcycle tends to last longer than where we're at now in this cycle.

Adam Turnquist:

We just hit the one-year mark, of course, but you typically get multi-year type cycles in the chip sector. So again, I think it alludes to fundamentals are strong to your point, maybe the valuations just need a little bit of time to reset and along with expectations. But and it might be just more of a consolidation or a waiting game here for semiconductors as the market kind of rotates into some other areas that look maybe a little more attractive on a valuation perspective. But I think long-term the growth story in this space still looks pretty compelling.

Jeffrey Buchbinder:

Agreed. 100%. So shifting gears. You know, I mentioned upfront that, you know, rising rates are a concern for the market, but we might be seeing some signs of a near-term top on the tenure. What do you think?

Adam Turnquist:

I think we're getting close. I think I threw this chart in there because it could be maybe a chart of the week depending on how we close by Friday, because we've had this huge rally in the 10-year yields moving higher, that is going through 4.30, 4.35. That was an important level that we were watching technically. It also overlapped with some other selling pressure or pain points for equity markets. But we're coming back over the last few sessions here with the tenure now, I think we got it at 4.29 back below the shorter-\ term, 20 day moving average. So we'll be watching that 4.35, 4.30 level for support. If we start breaking down below there, that would be, I think a good sign for not only yields moving lower, of course, but for equity markets as well. The next big spot you're going to want to watch is that 20 day moving average.

Adam Turnquist:

And I have the MACD indicator on the bottom panel that's moving average convergence divergence, just looks at the relationship between two different moving averages. And you can see the point that we hit just recently. We were very overbought. We started to roll over and get an actual cell signal. These are levels that are commensurate with some of these other peaks, going back to earlier this summer. And then of course last fall, you could see how that MACD indicator responded and yields rolled over little too early to make that case. But something we'll be watching very closely here on the technicals this week.

Jeffrey Buchbinder:

Yeah, this is probably the biggest fundamental risk. I don't think we're going to get evidence that that holiday shopping is a dud between now and year end. In fact, I think it'll be quite good. So the market's really going to be paying close attention to yields and maybe geopolitics. And with regard to yield drivers, you still have a fed where, you know, the market's really uncertain whether we're going to get a cut in December, be watching that. If the market starts to unwind cuts, we could get another, you know, bump up in yields. We also got to watch these Treasury auctions. There's a lot of those this week too that can influence yields. But at least today, the best Treasury pick is quite good for bonds. And maybe that helps us put in a top here is the market prices in a little bit more fiscal discipline, we'll call it. So let's go to market concentration, Adam. And here, this has been a really popular topic over the past couple of years as the Mag Seven has done so well. And, you know, the tech sector is I think 32% of the S&P 500 now. So I guess the, the theme here is just historical perspective on you know, market concentration. But it, when we get to the end of this, I want to hear your thoughts on just how big of a problem this can be as we look forward.

Adam Turnquist:

So driving that concentration is just this breakdown between passive and active flows. And we're showing that here. This was over the last 10 years or so. And the blue line is just the cumulative flows into passive funds versus the green line there, the active fund space. And we're at 2.8 trillion cumulative over the last 10 years. That compares to 3 trillion in outflows out of the active space. That of course gets you to a net of about 0.3 trillion negative 0.3 trillion. But that's really been at the core of this concentration risk theme, I guess we'll call it. Risk has been just this shift to passive as capital goes into passive funds, they invest. And as those larger cap companies get a bit more than some of the others, and it kind of builds into that Mag Seven concentration that we've seen.

Adam Turnquist:

And I think on the next chart, we have kind of a breakdown of how that's played out historically in terms of the top 10 S&P companies by market cap. Just to give you a perspective of where we're at relative to history. The top 10 right now, again based on market cap, represent about 37% of the overall index. You can see how those, that number has changed over the years, even going into the kind of coming out of Covid 2020 to 2022 timeframe. We're still above those levels. I think the big comparison everyone likes to make is the.com era, and you can see where we're at in relation to 2000, the top 10 companies there. I think most of those are, yeah, I think they're all still around, but we're well above levels that, you know, we've witnessed at the.com era and the rate of change has been pretty alarming here coming off the lows as you can see on the top right.

Adam Turnquist:

So it does of course bring up the whole issue of concentration risk because as goes these 10 companies as goes maybe the market, and I think we've seen that play out with Nvidia especially. I think that's just alone, I think a seven plus percent waiting within the index. That's more than an entire sector, several sectors within the S&P. So the good news, we heard it in earnings. They, you know, they are considered a growth company, quality, generate a lot of free cash flow. So you have your winners on the field, but there's certainly, if they get tired, there's some risk there for the market. Curious your thoughts on the issue of concentration risk right now?

Jeffrey Buchbinder:

Yeah, I think this increases the risk of a sell off once it starts, right? So I don't know, it almost makes the exit smaller and the crowd that's trying to leave the crowded theater bigger, right? So we still need a catalyst. We don't want one, but we still need a catalyst for a sell off. Once that sell off or that market correction starts to happen, the passive, more heavily passive market, and more concentrated market, I think maybe adds to the downside risk that you're going to get. That's how I, that's how I think about it. We're still going to be driven by fundamentals. Even in 2000, the market needed to see that a lot of that tech spending was wasteful, right? And wasn't going to have a return. And we were going to have a lot of bankrupt companies. That was a fundamental driver of a selloff, right?

Jeffrey Buchbinder:

It's unclear. We're, we're in a different environment today, obviously these are very profitable companies still. We haven't gotten to the point where we have a catalyst for the correction, so we're going to keep watching for it. But yeah, when it comes, maybe it can turn an 8% sell off into a 13, something like that. Because and these big names are going to, actually, this happened in early August. The big names sell off a little harder in a pullback than the you know, than the sort of medium sized or regular large cap names. I'll put it like that. So thanks to our friends at Bank of America and Goldman Sachs for these charts. This is a really interesting one, goes back to 1800. I don't know how they got data going back that far, probably from Academia. But the point here is that the tech sector's concentrated, right, Adam, is that the point here? What else does this tell us?

Adam Turnquist:

Yeah, and I think, you know, I've heard you say this line before and it may be somewhere else as well, but it goes to the adage. We focus so much on tech concentration, but that's kind of the world we live in. And that's when I was thinking of this chart, if you go back to the fifties, it was energy and materials. There wasn't really a tech, there was really no tech sector. And you think about our, our lives and where we spend money and where companies spend money and how these big themes change over time. It makes sense that we are this concentrated in tech and it makes sense. Energy and materials were a big concentration or transports in the, you know, the early 1900s for example. So I get the the idea of the overall risk, but it also is, you know, adaptive to the world that we live in.

Adam Turnquist:

I think your line is, you know, invest in the market you have, not the one you want. And we don't have a diversified market for really when you look at some of these concentrations, but we don't really spend our money in an equal weighted way either. So we live in a weighted world and this is a reflection of that. And I think I was reading some more on just overall concentrations globally because this is really just looking at the U.S. and there was a study that went out. They studied nearly 50 different countries in their markets and they found that the top 10% of market cap represented about 48% of the overall waiting. So when you ask, okay, is the U.S. concentration concentration risk high at 37%? It really depends on who you ask. If you're in Switzerland, no. If you're in some of these other countries, no. It's probably not enough because they're north of, I think, you know, 60, 70% for their top 10. So, and again, I think when you see these concentration risks kind of roll over and, and no longer, you know, you can see kind of some of these peaks, it's more macro forces. Concentration risk does not cause recessions, it's more the other way around. It's recessions break these bubbles. And I think that's, you know what we'll see when and if this ends. That's kind of how it's played out over history at least.

Jeffrey Buchbinder:

Yeah. The other thing to keep in mind here is that these tech companies are much more profitable than the energy companies of the sixties and seventies and the transports of the early 1900s. So those types of companies that are capital light with high returns on investment are worth more. So we just have a market that's worth a lot more than it was in the past. I think that's important in, you know, the whether you look at the Buffet Indicator, you know, market cap relative to GDP or you just look at PEs or price to sales or price to book or any of that, it's all going to be way more expensive than it was in the past. But, you know, we would argue that that's justified. At least most of the gap is justified if not all of it. So, interesting discussion there, Adam.

Jeffrey Buchbinder:

I think, you know, we're sticking with the market here. We're neutral on equities tactically, and we're not letting concentration stop us at this point. Although we are, as I mentioned, neutral tech and then underweight semis within tech. And I think there's a little bit of maybe caution in that stance. So let's preview the week ahead. This is a really busy Wednesday. I would argue this is probably the busiest Wednesday we've seen all year because look at this long list on the 27. Obviously, with Thanksgiving, no data on Thursday. And very few if any people are going to be working on Friday. Although our own Quincy Krosby, I believe is going to be on Yahoo Finance on Friday. So she I guess Quincy doesn't believe in vacations. So good for you Quincy, for doing that. I think that the Fed Minutes and the core PCE are the two big events of the week. Any thoughts on those or anything else, Adam, that you want to highlight on the weekend?

Adam Turnquist:

It'll be interesting to see the Fed Minutes of course core PCE is going to be important. I'm just kind of curious as we get closer and closer to the December meeting, if we get any insight there. When you look at some of this interest rate volatility, you know, trying to get a read on any edge on how the Fed is thinking for December, of course the market's been gyrating around. And then the other one, I know you only have the weekdays, but OPEC+ meeting this weekend, and that's going to be an interesting one. I think they're wrapping things up on Sunday. What are they going to do with their production quota levels? They've been postponing the increase of or I guess they're going to dial those down so there'd be more supply coming into the market with oil trading around 70 a barrel, as we talked about earlier. I'm really interested to see what their take is on if they're going to continue with their halts or if they're going to start ramping up their production again.

Jeffrey Buchbinder:

Yeah. They might start to get a little bit worried about lower prices, especially if we get a ceasefire in the Middle East and that takes prices down. Plus I guess Treasury secretary nominee Scott Bessant is a big fan of drill, baby drill. That part of his main sort of agenda is more production, 3 million barrels more of oil a year or a day I should say. He wants. So you know, we'll see how that goes. But yeah, oil probably more likely to be range bound or down based on the fundamental environment right now. So good point on the OPEC+, that'll be an interesting one to watch. We also get Treasury auctions, as I mentioned. In fact, I have those here, 183 billion in Treasury issuance this week. Wow. That's a big number. We get twos today.

Jeffrey Buchbinder:

We get fives tomorrow and then sevens on Wednesday. So we'll see what happens with those and how that affects rates. But you know, that combined with Fed Minutes will certainly be market moving for the rates market. So and the last thing, it's holiday shopping time. So, you know, we're probably not going to get any insights on holiday shopping this week, but starting next week we're going to get a lot of good information about the start of the holiday shopping season and all the Black Friday sales. So look out for that. Frankly, I think we're going to have a really good holiday season. You've got rising stock values and that of course is a historically been a good indicator of holiday shopping. And then, you know, even though we obviously still have an inflation problem, you know, incomes have been rising and unemployment's low. So, you know, I think the expectations that we've seen from like the National Retail Federation and others for maybe like a 3% year-over-year gain, I think that's probably too low. Yeah, I don't have a formal forecast, but look for some upside to that sort of three, three and a half based on the macro environment. So with that, we'll go ahead and end unless you have any closing comments, Adam?

Adam Turnquist:

No, just happy Thanksgiving to everyone! Have a safe and happy Thanksgiving coming up!

Jeffrey Buchbinder:

That was going to be my closing remark. Happy Thanksgiving, everybody. Hopefully nobody has to work much more than let's say Monday, Tuesday this week. So have a wonderful holiday. Thank you as always for listening to LPL's Market Signals. We will be back with you next week for another episode. Enjoy the holiday. Thank you, Adam, for jumping on this week. Take care everybody, and we'll see you next time.