Market Radar 03. April 2023


Successful stock market participants looked to the future in the first quarter

The ETF on the Nasdaq 100 (QQQ) achieved a record result in the first quarter of 2023: it rose by a whopping 20.52%.
The equally-weighted variant for the Nasdaq 100 (QQQE) rose by only 13.66% in the first quarter.
Based on this yield differential, we can conclude that relatively high-weighted stocks in the Nasdaq 100 have outperformed lower-weighted stocks. Let’s take a closer look at these outperformers:

The stocks from the Nasdaq 100 with the strongest performance for the first quarter of 2023 were Nvidia (90.13%), Meta Platforms (76.17%) and Tesla (68.37%). These three quarterly high-flyers together represent about 10% of the Nasdaq 100.

However, none of these three stocks is among the three highest weighted stocks in the Nasdaq 100. These are Apple, Microsoft and Amazon. Together, this trio represents almost 30% of the Nasdaq 100. Apple gained 26.86% in the first quarter, Microsoft 20.19% and Amazon 22.96%.

In the first quarter of 2023, we also saw a blatant outperformance of the Nasdaq 100 against the other major US stock indices. For comparison:

The ETF on the S&P 500 (SPY) closed the first quarter with a gain of 7.05%.
The ETF on the Dow Jones Industrial Average Index (DIA) was only able to achieve a positive result in the final spurt in the first quarter of 2023. Last Friday, the DIA ETF rose 1.26%; that was just enough to close the first quarter with a small profit of 0.39%.

The ETF on the Russell 2000 (IWM) rose 2.32% in the first quarter.
Since we see underperformance in small caps, it would be somewhat short-sighted to claim that the first quarter of 2023 was a stockpicker market. Stock pickers usually outperform with small caps – and these have performed worse than the six large-caps mentioned above since the beginning of the year.

What do highly capitalized stocks like Nvidia, Meta Platforms and Tesla have in common?

All three companies are counting on humans heading towards changed, interactive digital communication in everyday life: Keywords here are artificial intelligence (Nvidia), the metaverse (Meta Platforms), the electrification of the car (Tesla). These digital transformations will not only change how people interact with technology as they use it. The invention of the smartphone has already changed our daily switching and working and created a new, previously unknown dimension of information exchange and communication with other people. We now spend a large part of our lives actively on social media channels or use the offer of content on the web. However, what has so far only penetrated our everyday lives in a very peripheral way is human-like communication with devices: In the near future, human-like voices from devices will give us advice. We will spend time in parallel worlds as if we had left the house and met people. We will be driven around in cars instead of stepping on the gas pedal ourselves. Successful stock market participants had such a future in mind in the first quarter of 2023. Unsuccessful stock market participants allowed themselves to be fooled by monetary policy issues.

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What do we see under the radar of the major stock indices?

Market width indicators give the green light for rising prices at the turn of the quarter for the first trading day in April.
In 90% of all industry and theme ETFs I monitor, we now see higher lows or higher highs. 52% of all sector and theme ETFs I observe receive the daily stamp “buy or top-up” for today.

The market breadth has granted the bulls admission. And the doors are now being opened so wide that a rapid relapse below old intermediate lows is actually only conceivable through an external shock wave.

At the end of last week, we observed numerous breakouts of stocks to new highs in the charts.
In addition, some stocks have now left the bottoming phase or are about to do so. I will briefly introduce two of these stocks below: one stock broke out on Friday, the other stock is expected to break out shortly.

The congruence we are currently seeing in consumer goods ETFs also speaks in favour of a market-wide price increase manoeuvre. Both the basic consumer goods to be assigned to the risk-off warehouse (XLP: mineral water, toothpaste, underwear, etc.) and the non-basic consumer goods to be assigned to the risk-on warehouse (XLY: handbags, furniture, motorcycles, etc.) will receive the day stamp “Buy or stock up” for today. Such a consensual alignment of these two otherwise often negatively correlated ETFs can be found when the overall market enters a new market phase, which is characterized by the fact that it begins to ride a wave that affects almost all sectors and industries. At least as long as this upswing as a “new wave” is still admired somewhat incredulously by stock market participants. It is fitting that both risk-off profiteers such as energy suppliers (XLU) and risk-on profiteers such as technology (XLK) receive the daily stamp “buy or top-up” for today. If risk-on readiness increases, then risk-off investments are pulled up with it. We are seeing that now.
Even in bull phases, we can earn money with shares of energy suppliers.
But in bear phases, we can’t make money from technology stocks.
Which industries have not (yet) been affected by this “New Wave”?
These can be counted on one hand: banks, insurance companies, brokers, biotechnology, cannabis. 

Among the purchasable industries, only the healthcare sector (XLV) receives the daily stamp “bottoming out or sideways”. It is currently difficult to predict whether this sector will present itself on the stock market as a latecomer or continue to be an underperformer in the second quarter.