As we showed on Friday, the president doesn’t tell the stock market what to do – big money does.
For all the bearishness about a Biden victory, it turned out to be a HUGE week for U.S. stocks in the wake of his election.
If you’ve been reading Palm Beach Insider, this shouldn’t surprise you. I’ve been preaching for weeks about the likelihood that big money would buy stocks hand over fist as soon as the election uncertainty was out of the way.
And now that we’re on the other side of it, you can be comfortable knowing that the buying isn’t stopping anytime soon (especially with the Pfizer vaccine news out this morning.)
And to prove it, today I’ll show you how three extremely bullish elements – coming together all at once – will form a strong base for further market gains going forward.
The “Aftermath” Winners
Let me begin by saying that the stock market celebration likely isn’t about Biden’s win, but rather the likelihood of a non-Democratic majority senate. Gridlock in Washington is Wall Street’s friend. With the threat of Biden passing tax reform diminished, it can be “game-on” as usual. Big money sees no hurdles to keep buying up the market here.
But as much as it matters simply that the big money is buying, it matters even more what the big money is buying.
Last week the big money came in to buy nearly everything – but not equally. Let’s take a look at our proprietary sector ranking…
|Sector||Number of Stocks||Buy Signals||Sell Signals||% Bought||% Sold|
In this table, we can see the percentage of stocks in a specific sector that saw big-money buy or sell signals.
Yellow highlights means more than 25% of the stocks in that sector were bought – a hugely bullish signal.
So we’re seeing huge buying everywhere but real estate and energy – two generally disliked sectors amid the pandemic. (Today’s vaccine news appears to be changing that, but we’ll see what the data tell us after the close.)
What stands out most to me is that growth sectors got snapped up while value underperformed. This is an unwinding of the cautious pre-election stance of favoring value over growth.
Tech also caught a big influx of capital. We saw 121 buy signals in tech. Most of the buying was in software (30 buys), semiconductors (27 buys), and internet/data stocks (30 buys).
We also saw big buying in health stocks: medical devices, biopharmaceuticals, and miscellaneous healthcare.
There was also notable buying in industrials and financials. The latter saw focused buying in insurance and bank stocks.
So far the narrative is bullish. We have buying in growth sectors after an election. And when we add stellar earnings reports coming out, it only adds to the bull case.
But there’s one last metric that could ignite the rocket fuel for the stock market… Exchange-traded funds (ETFs).
From Wednesday to Friday of last week – the post-election limbo period – we observed 87 ETF buy signals. That’s more than we’ve seen in the previous 20 trading days combined.
While that kind of rampant ETF buying can often mark market tops, this was coming after a week of volatility heading into the election. So, I’m comfortable saying the ETF buying we saw last week was more indicative of risk-on than risk-off.
The Recipe for a Bull Market
With what I’m seeing today, we have a simple recipe for a continued bull market…
Big-money buying… in growth sectors… with strong ETF buying to confirm it.
With election uncertainty out of the way, and a promising vaccine candidate from Pfizer, the path forward for COVID and the economy is optimistic. Risk is back on.
But I can’t stress this enough: the big-money election pattern prefaced what was to come.
Nevertheless, it’s time to put the chaos of uncertainty behind us, and focus on prosperity and hope. We’ll let the market do its work in this new era, and keep an eye out for more bullish tailwinds to propel us through 2021.
Patience and process!
Editor, Palm Beach Insider