LOOK OUT BIGTECH, THERES A NEW SHERIFF IN TOWN.
Yesterday, we saw Will Hobbs, Barclays Wealth Chief Investment Officer, tell CNBC* that there was a potential for a big sell-off in big technology companies such as Amazon AMZN, AAPL, GOOG, NFLX, TSLA, and MSFT.
The message to investors really is to make sure that you don’t let your portfolio, or your batch of investments, get sucked into that ever smaller, more concentrated batch of recent winners. The industry has long been obsessed, and investors are understandably obsessed with the idea that you can protect the downside and capture equity upside. That is like the Holy Grail of investing.
Not to pick on Mr. Hobbs, but isn’t the cow already out of the barn? Megacap TECH has been underperforming for over a month. Since the market peaked on 9/2/20, TPAs BIGTECH is down almost 12%, while the benchmark S&P500 is down a little more than 4%. On the other hand, TPA has been warning clients about a BIGTECH selloff since 8/25. In the 8/25 World Snapshot, TPA told clients that
Large Cap Growth Warning
Large Cap Value is now more oversold versus Large Cap Growth than it has been in the past 40 years. Although the long-term trend for Large Cap Growth outperformance will continue, the current extreme will most likely reverse for a time-period ample enough for TPA clients to benefit [from the change]
The underperformance in BIGTECH is directly tied to the S&P500s reversal. The chart below shows that the S&P500 topped out on 9/2. This also marks the beginning of the underperformance of BIGTECH. Mr. Hobbs, it seems, is over a month late with his warning.
Note that the underperformance since 9/2 has reduced the weight of BIGTECH in the S&P500 from 31% to 29%, but 29% is still plenty of weight to be able to drag down the overall index.
S&P500 2020 YTD
Fortunately, TPA repeatedly told clients to be in BIGTECH since 4/8/20. They have benefited greatly from this guidance. Since 4/8, the S&P500 +25%, but the NDX 100 and TPA BIGTECH were up 42% and 54% in the same timeframe (relative performance chart below).
In the 4/8 World Snapshot, TPA told clients, It can be argued that the nature of the Pandemic put the businesses of the DJIA at more risk than those of the NDX, which is probably why they underperformed from 2/19 to 3/23.TPA sees NDX continuing the longer-term pattern of outperforming its older brother, the DJIA.
RELATIVE PERFORMACE S&P500, TPA BIGTECH, NDX 100, RUSSELL 1000 GROWTH SINCE 4/8/20
On 4/15 TPA again told clients to stick with Large Cap Growth and BIGTECH:
The stock market in 2020 is now an ongoing story of a great divergence between winners and losers. TPA breaks this widening divide down into 3 [winning] categories: 1. BIGTECH versus the broader market, 2. Large Cap versus Small Cap, 3. Growth versus Value
TPA reiterated its stance again on 4/17:
this pattern should continue unabated. The only chance for the pattern to be interrupted was anti-trust or some other regulation from the government. Given the recent state of the world, governments focus will be elsewhere for months and perhaps years to come.
MORE TPA REPORTS:
- 6/10/20 TPA clients should still be in the 2020 winners
- 7/31/20 How to avoid sad performance for the rest of 2020
- 8/10/20 Outperformance demands adherence to long term patterns
- 8/19/20 Stick with the new safety stocks
TPA continued to recommend BIGTECH until 8/25.
The chart below shows the relative performance of the BIGTECH, NDX 100, Large Cap Growth, and the S&P500 year to date for 2020. TPA has highlighted the periods from its 4/8 report to its 8/25 report and the period since 8/25.
The second chart shows (again) the huge outperformance of BIGTECH and growth from 4/8 to 8/25. The third chart highlights how the performance pattern has changed since 8/25. Since 8/25, BIGTECH is down 5.2%, while the S&P500 is almost unchanged. Given that BIGTECH makes up approximately 30% of the S&P500, a lot of other stocks have to do some very heavy lifting to keep the S&P500 stable.
On 9/4/20, TPA again warned clients that the performance patterns have changed and they should avoid BIGTECH and Large Cap Growth:
Yesterdays trading pattern fell in line with what TPA discussed last week. On 8/25, the World SnapshotTPA will continue to watch for a pattern to develop. Clients should also monitor the Canaries in the Coalmine for a confirmed pattern change in momentum stocks (TSLA, CRM, ADBE, AAPL, and NVDA) mentioned in yesterdays World Snapshot. These stocks finished the day as big underperformers; TSLA -9.02%, CRM -4.22%, ADBE -4.87%, AAPL -8.01%, and NVDA -9.28%.
On 10/1. TPA put out a sell recommendation on AMZN and MSFT. It is still early on, but since 10/1 AMZN is down 0.38% and MSFT is down 1.71% and the S&P500 is basically unchanged. So far, the move away from BIGTECH is continuing as forecasted.
- RELATIVE PERFORMACE S&P500, TPA BIGTECH, NDX 100, RUSSELL 1000 GROWTH 2020 YTD
2) RELATIVE PERFORMANCE S&P500, TPA BIGTECH, NDX 100, RUSSELL 1000 GROWTH 4/8/20 TO 8/25/20
3) RELATIVE PERFORMACE S&P500, TPA BIGTECH, NDX 100, RUSSELL 1000 GROWTH SINCE 8/25/20
4) RELATIVE PERFORMACE S&P500, TPA BIGTECH, NDX 100, RUSSELL 1000 GROWTH SINCE 9/2/20
Broad Market Performance
Finally, a look at the performance of broad U.S. market categories confirms TPAs analysis that there is a larger investment shift at play since the start of September. The chart below shows the relative performance of the benchmark S&P500, BIGTECH, Russell Large Cap Growth, Russell Large Cap Value, Russell Small Cap Growth and Russell Small Cap Value.
After trailing for the past 8 months, Small Cap has pulled ahead and Small-Cap Growth is the leader. The worst performer (by far) is BIGTECH and the second worse performing category is Large Cap Growth.
Two themes deserve repeating:
- The performance discrepancy between Large Cap Growth and other stocks had just become too extreme from a historical perspective.
- BIGTECH makes up so much of the market that many stocks have to rally to counteract their weakness; this means big moves in much smaller stocks
RELATIVE PERFORMACE S&P500, TPA BIGTECH, R1000 GROWTH, R1000 VALUE, R2000 GROWTH, R2000 VALUE SINCE 9/2/20
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Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.