The Monday Morning Playbook: Week of December 9, 2024

Good morning,

I posted the chart below on Twitter three months ago, and I think both the chart itself and the title of today’s report (taken from the tweet) are incredibly relevant to last week’s action:

First off, the call worked out (though there have been plenty of good value stocks). Large growth (+12.9%) is outperforming large value by 8.5% since September 14 and growth vs. value ratios hit multi-month highs across the board last week.

But “don’t overthink it” is also relevant because I’ve seen a lot of people try and twist last week’s action into something bearish.

What happened? Well, the Mag 7 stocks absolutely exploded with an average gain of 6.3%.

And what also happened?

The rest of the market took the week off.

Decliners outnumbered advancers every day of the week, the equal-weight S&P 500 was down 1.3% and 8 of 11 sectors lost at least 1%.

But because those 7 stocks account for 32% of the index, the S&P 500 gained 1%.

And you know what? Good.

This “supposedly bearish” market dynamic has been present for exactly one week and some of those stocks (like Microsoft which we called out last week) desperately needed to catch a bid. In fact, these stocks dragging the market higher is exactly what I was looking for in late October when they reported earnings, it just took a bit longer than expected.

That isn’t to say there aren’t risks. CPI is this week and the dollar is holding tactical support. Sentiment is running hot and the VIX (which has been a tailwind since the election) is near what has been its floor over the past 6 years.

It is just that as usual, the market breadth scares are put out by people who don’t understand them or have no interest in presenting them in an unbiased way.

Rotation is good. Don’t overthink it.

This week’s report will review:

• The S&P 500’s new high and action under the surface

• Uptrend lines to watch

• Rates and the dollar ahead of CPI

• Growth stock focus

• Crypto mania

• and more!