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In poker, a “tell” is a player’s subtle character or demeanor change that can unknowingly tip off an opponent and provide crucial information about how strong a hand they may have. The best and most powerful market tell on Wall Street is price action versus news. When the market gets hit with bad news, how fast it rebounds can be a tell for savvy investors.
Friday, after the market closed, the Nasdaq and other major US indices fell more than 1% after Moody’s ((MCO - Free Report) ) credit rating agency downgraded US debt based on the rising US budget deficit. Though stocks suffered a knee-jerk reaction Friday evening, cooler heads prevailed Monday, and stocks shook off the bad news. Such action is a hallmark of a bull market. Savvy investors should ask themselves, “If bad news can’t bring down stocks, what is likely to occur when there is no news?”
Late 90s Internet Precedents Mimics Present
BeSpoke Investment Group (@bespokeinvest) posted a fascinating chart recently that compared the releases of Netscape versus ChatGPT. The precedent, which tracks the tech-heavy Nasdaq, is very similar and provides a strong precedent. After all, the release of the Netscape web browser jump-started the internet boom in the late 1990s, while the ChatGPT chatbot release brought large language models (LLMs) to the masses and started the AI revolution.
Image Source: BeSpoke Investment Group
The overlayed chart shows the current Nasdaq tracking the late 1990s precedent very closely, rising 74.18% through 617 days, while the 90s example tracked 93.42% through the same time. Beyond the price action in the Nasdaq, the performance in individual AI names like Broadcom ((AVGO - Free Report) ), Microsoft ((MSFT - Free Report) ), and CoreWeave ((CRWV - Free Report) ) shows that the party may just be getting started.
S&P 500 Index Explodes to the Upside, Likely Not Finished
If there’s anything baseball’s steroid era taught, it’s that power and distance are correlated. Muscular hitters like Barry Bonds and Sammy Sosa smashed records and often hit baseballs out of the stadium. The same metaphor holds for stocks. The S&P 500 Index screamed higher by more than 19% in just 27 days following a warming of trade tensions between the US and China. Considering that S&P 500 returns are historically ~10%, most amateur investors may assume that the market is done moving higher for the year. However, historical data from Ryan Detrick (@ryandetrick) of Carson Investment Research shows us that the exact opposite is true. In fact, since 1950 S&P 500 Index has been higher one year later 100% of the time when it gains more than 19% in 27 trading days.
Image Source: Carson Investment Research
Bottom Line
On Wall Street, just like in poker, observing the subtle tells can be incredibly insightful. The market’s resilient reaction to the Moody’s downgrade, coupled with the historical precedent of the late 1990s, signals a bullish market ahead.
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US Stocks Brush Off Moody's, Echo Past Tech Booms
US Stocks Brush Aside Moody’s Downgrade
In poker, a “tell” is a player’s subtle character or demeanor change that can unknowingly tip off an opponent and provide crucial information about how strong a hand they may have. The best and most powerful market tell on Wall Street is price action versus news. When the market gets hit with bad news, how fast it rebounds can be a tell for savvy investors.
Friday, after the market closed, the Nasdaq and other major US indices fell more than 1% after Moody’s ((MCO - Free Report) ) credit rating agency downgraded US debt based on the rising US budget deficit. Though stocks suffered a knee-jerk reaction Friday evening, cooler heads prevailed Monday, and stocks shook off the bad news. Such action is a hallmark of a bull market. Savvy investors should ask themselves, “If bad news can’t bring down stocks, what is likely to occur when there is no news?”
Late 90s Internet Precedents Mimics Present
BeSpoke Investment Group (@bespokeinvest) posted a fascinating chart recently that compared the releases of Netscape versus ChatGPT. The precedent, which tracks the tech-heavy Nasdaq, is very similar and provides a strong precedent. After all, the release of the Netscape web browser jump-started the internet boom in the late 1990s, while the ChatGPT chatbot release brought large language models (LLMs) to the masses and started the AI revolution.
Image Source: BeSpoke Investment Group
The overlayed chart shows the current Nasdaq tracking the late 1990s precedent very closely, rising 74.18% through 617 days, while the 90s example tracked 93.42% through the same time. Beyond the price action in the Nasdaq, the performance in individual AI names like Broadcom ((AVGO - Free Report) ), Microsoft ((MSFT - Free Report) ), and CoreWeave ((CRWV - Free Report) ) shows that the party may just be getting started.
S&P 500 Index Explodes to the Upside, Likely Not Finished
If there’s anything baseball’s steroid era taught, it’s that power and distance are correlated. Muscular hitters like Barry Bonds and Sammy Sosa smashed records and often hit baseballs out of the stadium. The same metaphor holds for stocks. The S&P 500 Index screamed higher by more than 19% in just 27 days following a warming of trade tensions between the US and China. Considering that S&P 500 returns are historically ~10%, most amateur investors may assume that the market is done moving higher for the year. However, historical data from Ryan Detrick (@ryandetrick) of Carson Investment Research shows us that the exact opposite is true. In fact, since 1950 S&P 500 Index has been higher one year later 100% of the time when it gains more than 19% in 27 trading days.
Image Source: Carson Investment Research
Bottom Line
On Wall Street, just like in poker, observing the subtle tells can be incredibly insightful. The market’s resilient reaction to the Moody’s downgrade, coupled with the historical precedent of the late 1990s, signals a bullish market ahead.