As markets twist and turn in 2022, there’s excitement under the surface, says Lucas Downey of Mapsignals.com.
Better than-expected inflation readings triggered the most inflows all year...that’s sending the BMI surging. It’s also setting the stage for a yearend rally. A lot has happened since my last write-up.
Dampening inflation trends from October’s Consumer Price Index (CPI) & Producer Price Index (PPI) sent investors scrambling for stocks. Since Wednesday, November ninth, the S&P 500 (SPX) gained 6.5%. That’s a move.
Data suggesting inflation is sagging means the Fed can begin the discussions of slowing its rate increases. That’s great news for the bulls. With all this cheer, buyers are stampeding into stocks. Today I’ll show you which areas are attracting the most money...setting the stage for a yearend rally.
Setting the Stage for a Yearend Rally
Calling for more upside in markets may sound like a bold call but hear me out. Our data is signaling a huge appetite for equities right now. A great way to see that is with the Big Money Index. It plots a moving average of stocks climbing on big volumes. When it’s rocketing higher, like now—demand is outstripping supply. The BMI is at levels not seen since early September:
The value of the BMI is 57%, which is nearly a 40-point rise in a month! The key is that it’s vaulting higher, signaling a wave of accumulation is taking shape. To get a better view of this, let’s drill down on the daily data. The chart below plots the daily count of stocks bought and sold. Notice that last Thursday and Friday logged the most buys in a year. Slowing inflation gave many investors the green light to buy stocks:
The arrow above points to two consecutive days with 200+ stocks getting bought. That’s the highest number since March 2021. That’s significant given that 200 or more buys in a single day have only happened 111 times since 2000.
Said simply, it’s rare to have this much green. The market finally has a positive macro catalyst, setting the stage for a yearend rally. This fits in line with our post-midterm election playbook, where November and December tend to see large inflows of capital. A ramping BMI in November should come as no surprise!
Finally, let’s drill down on the three sectors most responsible for the climb in our data. First is the Discretionary group. Hopes of looser monetary policy mean big investors believe consumers will have more discretionary income to purchase goods. Money surged into retail, food, lodging, and travel stocks:
Next is Financials. Elevated rates and cheap valuations have made this group very attractive. The sector sports a forward 12-month PE of 12.4, which is far below the S&P 500’s forward PE of 17.42.
Money rushed into banks, insurers, and asset managers. Last week saw the most accumulation since January:
Lastly, there’s the Materials group. Copper companies, steel makers, and miners saw their stocks elevate. Nearly 20% of our institutionally tradable universe logged inflows:
These fresh signals suggest a further bull run is likely in the cards heading into year-end. Any more positive surprises on the inflation front will keep equities well bid. Let’s wrap up.
Here’s the Bottom Line
Inflation finally appears to be falling. This is buoying stocks. In fact, last week we saw the largest daily inflows since March 2021.
Discretionary, Financial, and Materials stocks are under heavy accumulation, sending the BMI surging. This is setting the stage for a yearend rally, in line with our post-midterm outlook.
To learn more about Lucas Downey, visit Mapsignals.com.