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Caution Ahead and Buy Any Election Dip

Savor this moment. Markets don’t get much better than this.

Add up Fed easing, low inflation, steady growth, rising earnings and plump profit margins, and you’ve got the recipe for the big-time gains we’re seeing.

But with the S&P 500 up a crowd-stunning 38% in the past year, our data-focused stance suggests investors use caution ahead and buy any election dip.

Let’s be real for a moment. Fans of MAPsignals know we’ve been bullish since this huge rally started 2 years ago. That’s because we often recommend going against the crowd when the odds are stacked in our favor.

Nobody wanted to touch stocks in October 2022. But we saw one of the most rare bullish signals flashing green.

In a similar vein, a few data points suggest extreme optimism is baked in the cake right now.

Today, we’ll use our top, proprietary, contrarian indicator to show you why now’s the time to lighten up. Then we’ll highlight what you’ll want to buy on weakness once the dust settles.

To be clear, this bull market’s not over.

We just believe the odds of a tradable, near-term pullback are high and want to help you make the most of it.

White flags are waving.

Be Fearful When Other Are Greedy

Warren Buffett famously said: Be greedy when others are fearful and fearful when others are greedy.

Bears are hard to find these days. A year ago, Wall Street strategists sheepishly predicted the S&P would end 2024 pretty flat at 4800. We took the other side on that as well revealing a dozen charts signaling big gains coming for 2024.

Fast forward to today, now strategists are tripping over themselves to publish year end targets over 6000.

The excitement extends beyond the pros. The American Association of Individual Investors (AAII) surveys its 2 million members to see how they’re feeling about stocks?

We track the 4-week average of bullish minus bearish sentiment readings. It’s averaged 6.5% since 1987.

The latest reading has bulls outnumbering bears by 18.6% – about triple the long-term mean – easily in the top quartile since the late 80s:

OK, here’s how this helps you make money.

Check this out: Stocks cool off after sentiment gets too bullish. The S&P 500 has returned a below average 2.6% in the six months after frothy AAII bullish sentiment readings like we’re seeing right now:

The good news is a healthy digestion period for stocks offers you a buy the dip opportunity.

And the better news is when MAPsignals’ proprietary data agrees.

Let’s take a look at MAPsignals’ most popular money flow indicator to see if it’s sending the same cautious message.

Caution Ahead and Buy Any Election Dip

Here’s how our Big Money Index (BMI) works: Readings under 25 indicate stocks are deeply oversold and it’s time to buy. Conversely, rare readings over 80 indicate stocks are way overbought and a pullback looms.

Subscribers know we’ve been nailing major market pivot points with it for years.

Let’s see what the BMI is telling us now.

It’s sending the same cautious message as the frothy AAII investor sentiment survey. After reaching the rare overbought zone above 80 recently, it’s just fallen out of it.

Check out this chart of the BMI. Notice how the yellow indicator typically declines abruptly once the 80% threshold is breached, highlighting that demand for equities is shrinking and sellers are slowly taking over:

This gravitational tug often spells near-term pain for stocks. Check out the chart below.

Since 2014, the average 2-month return for the S&P 500 post this caution signal is -2.1%. The tech-heavy NASDAQ 100 sees a similar decline of -1.5%.

The more-volatile S&P Small Cap 600 fares worse with an average -4.3% over the same period.

Let’s unpack this further to understand what’s actually happening from a supply and demand perspective when the BMI is shifting course.

Forget the media headlines that change with the wind. Instead, focus on institutional money flow.

The Big Money flows in 4 phases:

1. Huge buying and little selling (think early October)

2. Buying slows & selling grows (where we are now, typically near an interim peak)

3. Buying slows further, selling takes over (a correction hits)

4. Buyers are gone, sellers are in control (rare oversold conditions, the best buying opportunity)

We appear to be entering into phase 2 with the BMI heading south.

Before you panic, keep in mind that these phases can shift quickly. Sometimes equities fall fast…other times it’s a slow slog.

This is why it’s critical to follow the BMI in real-time.

Good buying opportunities arise in phase 3. That’s typically where most pullbacks end.

Rarely do we ever reach phase 4 which is defined as a truly oversold market… the last one occurred last fall, when the BMI slumped down to a super-low 17. It was rightly telling you to buy right as stocks were bottoming out. The S&P 500 is up over 40% since its October 2023 low at 4103.

It pays to follow the money!

What This Means for Your Portfolio

Frothy investor sentiment and a toppy BMI both point to high odds of a near term pullback. That’s a powerful 1, 2 punch!

But to be clear, this is a tactical call. This bull market isn’t over.

Think of this as a pause that refreshes.

OK here’s your buy any election dip playbook.

Once the dust settles, stocks have done very well historically after presidential elections looking out beyond the first couple of months.

Since 1988, the S&P 500, NASDAQ 100 and the Russell 2000 have all posted strong 3M, 6M and 12M post-election gains with small caps leading the way (chart).

The prior 9 Presidential election days saw the following 12-month returns:

The S&P 500 jumped 15.3%
The NASDAQ 100 leaped 17.6%
And the Russell 2000 galloped 20.4%

Election jitters are a gift for the prepared investor.

Let’s wrap up.

Here’s the Bottom Line:

Use caution ahead and buy any election dip. Portfolios have enjoyed an amazing run and history suggests a healthy pause is due.

Warren Buffett reminded us to fear greedy environments.

Frothy investor sentiment and a toppy BMI both point to high odds of a near term pullback.

But be tactical. This bull market isn’t over.

Think of this as a pause that refreshes.

Just don’t get too overly bearish. Here’s why you want to buy the dip:

Once the dust settles, stocks have done very well historically after presidential elections looking out beyond the first couple of months.

Since 1988, the S&P 500, NASDAQ 100 and the Russell 2000 have all posted strong post-election gains. Small caps have outperformed with 9.3%, 10.6% and 20.4% average gains over 3, 6 and 12 months, respectively.

That’s a historical vote of confidence if you ask me!

If you want to find specific large-, mid-, and small-cap names ramping with Big Money support, get started with a MAPsignals PRO subscription. It’ll get you access to our portal that updates every morning, showcasing the exact tickers being bought and their scores.

Our prized Top 20 list is full of small-cap market beaters. This is the report that found every winner in our research.

The opportunity is there. You need a map to spot it!

Invest well,

-Alec Young

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@mapsignalsOctober 31

Election Volatility Risk

Want to divide a room? Ask a group who they’re voting for.

Want to inform a room? Arm the crowd with an election volatility risk playbook.

2 data-driven reasons suggest election volatility risk could be coming for your portfolio.

There are a lot of cross currents garnering investor attention right now: inflation risks, earnings, wars, and even deficits are in the limelight.

Truthfully, you can opine all day on those issues and never reach an agreement.

What’s not up for debate though are 2 hard-hitting facts which spell added volatility coming our way:

A falling Big Money Index (BMI)
Notable election volatility risk post the November vote

As it relates to the 2nd point, no matter if you’re a devout donkey or emphatic elephant, you’ll find value in today’s message.

There are powerful election patterns to understand and profit from.

But before we get into hard-hitting historical studies, let’s first unpack the money flow situation…lately, our most popular indicator has been sending a spooky message.

Big Money Index (BMI) Continues to Fall Ahead of Election

Last week’s update set the stage for downside risks for equities. When the BMI falls out of overbought territory, stocks often stumble.

This Line of Truth sheds light on institutional support for stocks. When it’s sinking, the bid for equities is shrinking.

Let’s review the illustration from last week:

As of this morning, this North Star has a reading of 72%. That’s 9 points below the recent peak of 81% made on October 18th.

If you’re wondering why the sudden downshift is occurring, it comes down to 2 simple words: election volatility.

There’s nothing worse for Wall Street than uncertainty. Presidential elections elicit plenty of unknowns about the future.

Turns out, equity benchmarks behave wildly differently depending on who wins the Oval Office.

Here’s where you’ll want to get your notebooks out. This guide may come in handy for next week and beyond.

Prepare for Election Volatility Risk

Election years get the financial media in a tizzy. That’s simply due to the fact that election years have a painful history.

The Global Financial Crisis of 2008 can never be forgotten. The same goes for the epic Dot-com bust of 2000.

Let’s also not forget the COVID-19 pandemic of 2020!

Yes, there’s an ugly truth to stocks during election years.

But here’s the reality. When you cast a wider net, looking back further, you learn a few powerful repeatable behaviors.

Today’s studies include 5 Democrat and 4 Republican presidential winners. All returns begin from election day.

While we’re going to wade through a lot of data, don’t worry. By the time we’re finished you’ll have a straight forward gameplan.

Up first, let’s review the near-term picture for both large and -small cap stocks. Back to 1988, here’s how equities perform from election day:

1 and 2-weeks out sees both the S&P 500 and NASDAQ 100 fall on average
2-months later large-caps stabilize with the S&P 500 modestly gaining 2.4% and the tech-heavy NASDAQ gaining 1.4%
Importantly, 2-months after the vote, the Russell 2000 averages a strong 6.6% rip

The reason Big Money investors are moving to the sidelines right now comes down to historical election volatility.

The initial takeaway is to expect a giveback for popular large-caps and a jolt for smaller stocks.

If you’re inclined to pull out the bear suit…hold tight. There’s a bigger picture to understand.

When you step back and expand the time horizon, you learn that election dips often lead to election rips.

Since 1988, all market cap sizes see healthy positive gains over the medium to longer-term:

6-months post the vote, the NASDAQ 100 jumps 5.6% followed by the S&P 500’s vault of 7.1%, and the Russell 2000 screams 10.6% higher
Be bold with a 12-month hold and all major benchmarks show market beating gains of 15.3% for the S&P, 17.6% gains for the NASDAQ, and a whopping 20.4% rally for the smaller Russell 2000

Don’t get too cute over the near-term wobbles…you may just miss a big fat rally if history is any guide.

Up to this point, note how small-caps have been a solid portfolio bet the last 3+ decades. This aligns with our against-the-crowd overweight stance on SMID caps for many months.

But let’s take our study a step further by answering the burning question on everyone’s mind.

What will happen to stocks if a Republican or Democrat wins next week?

Turns out, history sets the record straight.

What Do Stocks Do When a Democrat or Republican Becomes President

When we use the same framework and single out only Democrat presidential winners, a striking pattern emerges.

In the first couple of weeks after the vote, all stocks sputter. That’s followed by firming action months later.

Since 1988 when a Democrat wins the White House:

The S&P 500, NASDAQ 100, and Russell 2000 fall 1 to 2-weeks later
1-month after sees the NASDAQ jump 1.8% and the Russell 2000 lift 1.6%
Most important is the 12-month surge in the NASDAQ and Russell 2000 with 29.3% and 29% gains respectively

A win for blue has spelled great fortune for small-caps and tech stocks.

Finally, let’s discuss the elephant in the room…a red victory.

Get those notebooks out. Big dispersion trades have occurred after Republican triumphs.

Since 1988 when the GOP won the White House, NASDAQ stocks sputter while the S&P 500 and Russell 2000 gain.

A month after a Republican wins, the NASDAQ falls 2.3% on average while the Russell 2000 jumps 4%.

Looking out to 6-months, tech stocks are still lower by 3.1% while the S&P 500 rallies 3.6% and small caps jolt 6.8%.

12-months out the Russell 2000 ramps 9.6%.

As we head into next week and beyond, keep this election volatility risk playbook handy.

Also note how small-caps have been an election benefactor in all scenarios. At MAPsignals, we believe portfolios need to have some sliver dedicated to small and mid-caps especially as we head into 2025.

There are lots of under the radar names under massive institutional sponsorship right now.

As we wrap up, odds clearly suggest institutional investors will be plowing capital into one area.

You’ll just need a map to see it!

Here’s the bottom line: The BMI is falling. We aren’t surprised given how stocks tend to struggle shortly after a presidential election.

Today’s study highlights how there’s high risk for big winners and big losers depending on the victor.

The better news is that new leadership in the Oval Office often means new leadership in the stock market!

Let MAPsignals be your market map in the coming weeks and months.

If you’re a serious investor, money manager, or a Financial Advisor, there’s no better time to up your research offering for yourself and your clients. Get started with a MAP PRO subscription.

There’s a good chance that the big winner will be your portfolio.

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@mapsignalsOctober 24

Big Money Index Signals Pullback Ahead

Equities saw their worst daily pullback in weeks.

Our Big Money Index signals pullback ahead.

Yesterday was a reminder that volatility can strike out of nowhere.

The S&P 500 declined .92%. Even more jarring, the NASDAQ 100 fell 1.55%, its single worst performance in 6 weeks.

This pullback came just as the Big Money Index fell out of overbought territory. From a data-standpoint, this surprising turbulence actually came right on time.

A falling BMI indicates bids are fading and near-term caution is warranted.

Just don’t get too cute with the bearish rhetoric. While our cautious stance is still in place, there’s evidence that a mega buy-the-dip opportunity is just around the corner.

Today we’ll dive into why our medium-term outlook remains favorable for stocks…and which group you’ll want to overweight into any healthy market declines.

But first, let’s take a stroll through the Big Money landscape.

Big Money Index Signals Pullback Ahead

When your mind can’t imagine falling stock prices, turn to data.

Sometimes looking backwards helps us prepare for the future.

Our trusty Big Money Index (BMI) often spots potential inflection points when markets reach the rare overbought zone.

As we highlighted last week, once the BMI falls out of the red zone, stocks tend to wobble. Here you can see how each time the BMI fell out of overbought conditions, this Line of Truth retreats in healthy fashion:

Notice how the yellow indicator typically declines abruptly once the 80% threshold is breached, highlighting that demand for equities is shrinking and sellers are taking over.

This gravitational tug often spells near-term pain for stocks which you’ll notice below:

Let’s dissect this a little more. Let’s unpack what’s actually happening from a supply and demand perspective.

This is where understanding the Big Money phases comes into play. Forget the media headlines that change with the wind. Instead, focus on the waves.

The Big Money flows in 4 phases:

1. Huge buying and little selling (think early October)

2. Buying slows & selling grows (where we are now, typically near an interim peak)

3. Buying slows further, selling takes over (a correction hits)

4. Buyers are gone, sellers are in control (rare oversold conditions, the best buying opportunity)

We appear to be entering into phase 2 with the BMI heading south.

Before you panic, keep in mind that these phases can shift quickly. Sometimes equities fall fast…other times it’s a slow slog.

This is why it’s paramount to follow the BMI in real-time.

Good buying opportunities arise in phase 3. That’s typically where most pullbacks end. Rarely do we ever reach phase 4 which is defined as an oversold market…the last one occurred one year ago when we made the ultra-against-the-crowd call for a massive rally.

It pays to follow the money!

So, why am I of the belief that you want to be buying any pre-election dip? Simple. It comes down to one of the most bullish seasons for stocks kicking off in November.

That’s right, November – April is a very powerful 6-month period for markets.

Since 1995, November – April sees:

The S&P 500 gain 7% on average
The NASDAQ 100 ramp 9% on average
The S&P Mid Cap 400 rally 9.35%

This last point is the bullseye. Mid-caps are the best performing group beginning in November. This narrative also aligns with the fact that mid-caps do well during rate cut regimes.

This is the opportunity in the current distribution phase we’re in.

With election tape bombs hitting daily, don’t be surprised if market gyrations continue in the coming weeks.

The Big Money Index signals pullback ahead. But now you know what comes next: opportunity ahead.

Election jitters tend to fade away after the vote.

History suggests mid-cap stocks are set to thrive…and plenty of them are under accumulation today.

You just need a map to find them!

Let’s wrap up.

Here’s the bottom line: If the Big Money Index could talk it’d utter 2 words: Pullback ahead.

Just don’t get too carried away with a drawn-out selloff. It’s a buy-the-dip opportunity. November kicks off a wicked seasonal period for stocks through April.

Make sure your buy list is ready and full of high-quality mid-caps exhibiting constant institutional sponsorship.

This is where MAPsignals offers best in class research. If you missed last year’s rally, don’t miss the next liftoff phase. As soon as the election is over, institutional investors routinely put money to work.

Let’s hope you do too!

If you’re a serious investor, money manager, or RIA searching for under-followed stocks under heavy institutional accumulation, get started with a MAP PRO subscription today.

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@mapsignalsOctober 21

MACRO: Big Momentum is a Buy Signal

Here are a few tidbits about the stock market. The S&P 500 has hit 46 all-time highs this year. It’s up 22% YTD and a whopping 63% since this bull market began two years ago.

Don’t let that juicy performance scare you. Big momentum is a buy signal.

But stocks’ huge gains aren’t keeping bears from calling for a nasty sell-off.

We know it’s hard to tune out the negative noise.

Wall Street’s latest worry list ranges from uncertainty about the pace of Fed easing to the recent back-up in interest rates, election jitters and Middle East geopolitical tensions, to name just a few.

Tune it out. Bull markets are born on despair, mature on skepticism, bloom on optimism, and finally die on euphoria. This time-tested behavioral evolution takes an average of four years to play out, not two.

While we may have finally transitioned from skepticism to cautious optimism, Wall Street’s endless worry list proves euphoria is still a long way off.

Our bullish macro message for investors hasn’t changed. This broadening rally has plenty of upside.

Today we’ll show you why market momentum signals more gains ahead. Then we’ll debunk the bears’ latest two big macro worries and show you three cyclical sectors with the most upside as this bull market keeps charging higher.

Big Momentum is a Buy Signal

The market’s climb has been awe-inspiring. A quick look at market history shows just how strong it’s been.

Since 1990, the S&P 500’s average six-month gain is 4.7%. That’s less than a third of the 18% Mr. Market has delivered since mid-April!

We know it’s tempting to cash out after such a massive run. Keep reading to find out why that’s a big mistake.

The market’s momentum is undeniably strong. But it turns out that turbo-charged rallies are a reason to buy rather than sell.

Since 1990, the S&P 500 has averaged a 13.2% gain in the 12 months following top-quartile six-month rallies, compared to only a 9.6% gain in an average 12-month period.

Some are calling the latest 6-month rally biblical in nature. If so, the following Wall Street adage reads like a scripture – strength begets strength:

On April 8th, we told you Strong Momentum isn’t a Reason to Sell Stocks. The S&P 500 is up 18% since.

Back then, our high conviction was largely based on stocks’ strong momentum over the prior 6 months.

We’re making the same call today.

But strong momentum isn’t the only reason we think this rally has legs.

Let’s shift gears and debunk two new worries topping bears’ worry list. I’m sure you’re hearing these a lot.

A slower pace of Fed interest rate cuts tops the list.

The bears say to sell stocks because the Fed will only be cutting rates slowly owing to continued economic resilience and a slowdown in inflation’s decline. Forget about any more juicy 50 basis point rate cuts.

Sounds like bad news for stocks, right?

Not so fast. Here’s what the bears miss. When easing has been slow, stocks fly.

Check out the performance of the S&P 500 after the first Fed rate cut dating back to 1954. When the pace of cuts is slow, the index is up 24% on average a year later. That’s 19% more than the S&P’s rallied so far.

Contrast this to fast rate cut cycles when the S&P 500 only gains 5.2% on average a year later, well below the 10% historical average annual gain:

If the Fed is cutting rates quickly, it usually means there’s a crisis afoot (Dot Com Bubble, Great Financial Crisis, Covid 19 etc..) or the economy needs rescuing because it’s already slipped into recession.

That’s not the case today.

The latest Atlanta Fed real-time Q3 GDP growth forecast is 3.4%, and CPI inflation fell to 2.4% in September, the lowest reading since its 9.1% peak back in 2022.

This goldilocks macro picture points to gradual Fed easing, which has been very favorable for stocks.

Let’s pivot and tackle the other big new macro worry – the recent back-up in long term interest rates to 4.1% from September’s 3.6% low.

The bears argue this “higher for longer” macro will short circuit stocks.

First off, why rates are rising matters. Long rates aren’t up because of spiking inflation, they’re up because the economy is stronger than expected. That’s good news for stocks.

And history says long-term interest rates shouldn’t go much higher. Check this out:

Since 1955, when CPI inflation is 2.4%, 10 Year Treasury yields have been super stable. History says long rates aren’t going much higher with inflation this low:

What This Means for Your Portfolio

In January, we told you Macro Drivers Signal a Broadening Rally in 2024.

Broader market participation has been picking up steam since July. The S&P 500 Equal Weight Index rose 9.1% in Q3, easily beating the S&P 500’s 5.5% advance.

We’re still fans of big tech, but investors need to broaden their tech allocations beyond the Mag 7 to include smaller blue chips as well as mid and small cap tech names too.

Other cyclical sectors like financials and industrials are also seeing strong institutional inflows as economic resilience forces skeptical fund managers to boost allocations to cyclicals amid a brightening earnings outlook.

Note the YTD leaderboard has broadened out to include other cyclical areas beyond just big tech:

In January, we told you Macro Drivers Signal a Broadening Rally in 2024.

Broader market participation has been picking up steam since July. The S&P 500 Equal Weight Index rose 9.1% in Q3, easily beating the S&P 500’s 5.5% advance.

We’re still fans of big tech, but investors need to broaden their tech allocations beyond the Mag 7 to include smaller blue chips as well as mid and small cap tech names too.

Note the YTD leaderboard has broadened out to include other cyclical areas beyond just big tech:

Don’t let a bout of momentum sideline your portfolio. The evidence says to play offense rather than defense after high-momentum periods like we’re seeing now.

Here’s the Bottom Line: Stocks have had an amazing run. But don’t jump off the rally wagon just yet.

Since 1990, the S&P 500 has averaged a 13.2% gain in the 12 months following top-quartile six-month rallies like the S&P’s 18% rip since April.

Don’t be afraid to buy dips.

The economy is doing fine and the Fed will still keep cutting rates. Today’s 4.75% fed funds rate is too restrictive with inflation at just 2.4%.

Don’t sweat the pace of rate cuts.

Since 1954, when the Fed eases slowly, the index is up 24% on average a year later. That’s 19% more than the S&P’s rallied since the Fed’s first rate cut on September 18.

As for the recent rise in long rates, it’s unlikely to derail the equity rally. Since 1955, when CPI is 2.4%, 10- Year Treasury yields have been stable. History says rates aren’t going much higher with inflation this low.

Take advantage of any pre-election volatility to buy cyclical sectors like industrials, tech and financials. Economic resilience is helping them power record S&P 500 earnings.

It’s a safe bet they’ll continue to lead as this bull market charges higher.

If you want to find specific tech, financials, and industrials stocks ramping with Big Money support, get started with a MAPsignals PRO subscription. It’ll get you access to our portal that updates every morning, showcasing the exact tickers getting bought and their scores.

As we’ve highlighted previously, brand new stocks are leading the next leg higher.

Our prized Top 20 list is full of market-beating equities in these three sectors.

There are plenty of winning stocks to pick up as the market broadens out. If you’re a Registered Investment Advisor (RIA) or a serious investor, use a MAP to find them!

Invest well,

Alec Young

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@mapsignalsOctober 17

Stocks Finally Reach the Rare Overbought Zone

Happy anniversary!

One year ago today, extreme oversold conditions ignited a rally for the ages.

Today, it’s time to acknowledge the other extreme: Stocks finally reach the rare overbought zone.

Last October, it was a lonely call to suggest “a massive rally is coming soon.” But when you’re armed with evidence-rich data, those crowd-stunning calls are easy to make.

Today marks the one-year anniversary of the oversold Big Money Index (BMI). For those keeping score, both the S&P 500 and NASDAQ 100 are both up 35% since.

It’s one of the most powerful risk-on signals you’ll find.

Congratulations if you heeded that call.

Today’s message signals a shift in tone. We’ll try and decipher what investors can expect going forward.

More importantly, when it’s a good idea to take some profits off the table.

Please NOTE: Our long-term bullish stance is not changing.

However, overbought conditions will not last forever and eventually a healthy pullback will begin.

We’ll cover the one data point to help guide you once the tides shift.

But first, let’s take a stroll through the Big Money landscape.

Stocks Finally Reach the Rare Overbought Zone

Markets are constantly moving from one extreme to the other. Our trusty Big Money Index (BMI) helps us gauge when the pendulum has swung too far.

Since 2018, we’ve had 7 extreme oversold readings and 10 overbought readings:

From this image it should be evident how powerful oversold readings are for market returns. Since 2018, once the BMI reaches oversold (green dots) the average 12-month return for the S&P 500 is +26.1%.

I should also mention that the win percentage is 100% in this limited window. So when we yell to back up the truck, like we did on March 19th, 2020 …now you know why.

Stocks rarely hang around in the extreme zones forever.

The other extreme zone to be aware of is the overbought zone. We pierced it this morning with the BMI clocking 80.9%.

On a 5-week basis, 81% of our buy and sell signals have been green…that’s extreme. Here’s a look at the past 4 red zones since 2022. You’ll notice we tend to see a pullback soon after:

Now, you may assume I’ve turned into some big bad bear overnight.

That’s hardly the case.

I just respect data. And after being in business for 10-years, we’ve learned a thing or 2 about the rare overbought zone.

First, back to 2014 the BMI stays overbought for an average of 21.88 days. That’s right about a month.

So don’t be surprised if the market’s enthusiasm hangs around for a while!

Second and most important, once the BMI falls out of overbought, stocks struggle. It’s when the tide goes out that we see falling equity prices.

Check out this chart.

When the BMI breaks below 80% after being overbought, large and small-cap stocks are negative on average 1-week to 2-months out.

Once the BMI falls out of overbought:

A week later, the S&P 500 falls .9% and the S&P Small Cap 600 dips 1.3%
A month later, the S&P 500 slips 1.6% and small caps crack 2.7%
2-months after, the S&P 500 drops 2.1% and the S&P Small Cap 600 falls 4.3%

Do yourself a favor and stick this graphic on your refrigerator. It’ll come in handy once the BMI signals the bid for stocks is fading.

It’s when the tide goes out of stocks that you’ll be glad you have MAPsignals.

BUT don’t lose sight of the bigger opportunity. It’s during painful drops when opportunity arises. This forecasted stumble is simply a minor blip in a massive bull market.

If you’re new to the MAPsignals process and missed out on the outstanding gains the last year…don’t fret – historical evidence says your buy-the-dip opportunity is around the corner.

You just need a map to see it!

Let’s wrap up.

Here’s the bottom line: Congratulations if you stuck with stocks the past year. Extreme oversold readings ignite monster rallies.

On the flip side, our Big Money Index (BMI) alerts us once equity conditions flash the red light.

From time to time, stocks finally reach the rare overbought zone. This isn’t a time to be fearful…it’s a time to start focusing on lightening up risk ahead of a healthy pullback.

Let the BMI be your guide.

Ride the wave until it crests.

That’s the power of following the market map!

To quote Jon Kabat-Zinn, “You can’t stop the waves, but you can learn to surf.”

If you’re a serious investor, RIA, or money manager get started with a MAP PRO subscription to help you navigate extreme conditions.

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@mapsignalsOctober 10

2 Key Signals Forecast Strong Gains for NASDAQ Stocks

Investing doesn’t have to be complicated.

Simply own great companies…especially technology names.

2 key signals forecast strong gains for NASDAQ stocks.

Let’s be honest, clouds of uncertainty are everywhere you look. We’re facing:

A looming election
Global wars
Record Federal debts

The list goes on and on. Sounds complicated, right?

It doesn’t have to be. Focus where institutions are placing their bets and odds are you’ll grow your wealth… and ideally worry less.

At MAPsignals, our money-flow indicators have signaled healthy appetite for stocks for months. That’s kept our unpopular bullish message in play.

Today’s write-up offers 2 evidence-rich studies pointing to healthy gains ahead for the NASDAQ. The lagging group is getting an upgrade today.

If you’re like me and are hunting for positives in a sea of uncertainty, we’ve got you covered.

But first, let’s size up the money-flow landscape.

Big Money Index (BMI) Remains in an Uptrend

Working on Wall Street taught me to respect the flow of money. Handling countless equity orders for institutions revealed the ultimate power law in markets: supply and demand.

If demand outstrips supply, stocks have nowhere to go but up.

Our Big Money Index (BMI), which gauges unusual buy and sell pressure on thousands of stocks, has been steadily rising.

On a 3-year basis, you can see how it tends to lead markets when we reach extreme readings (overbought red line and oversold green line).

Currently, we’ve been cruising along in the mid-70s:

This is healthy action. However, we all know that stocks haven’t been climbing in a straight line. We’ve had a number of selloffs along the way.

This is where we find our first signal study on the NASDAQ.

2 Key Signals Forecast Strong Gains for NASDAQ Stocks

Respecting the trend is paramount.

However, there are explicit capitulation signals to understand as well. These are some of the most powerful signals you’ll find anywhere.

The last notable selloff was in early August when the VIX exploded to over 38. We were front and center with our subscribers telling them to buy the dip.

One of the reasons was due to ETF liquidations. When investors dump ETFs, it often signals a near-term bottom is in play.

On October 5th, we logged 142 ETFs sold. This is one of the largest outflow days in recent years:

Now you may think this is old information. But you’d be wrong. These force-selling events act like a reset for markets. They often create a mega-uptrend for months and years later.

Here’s why this level of selling is bullish for the NASDAQ.

In our August liquidation piece, we highlighted the forward returns for both the S&P 500 and NASDAQ 100 post 125 or more ETFs sold since 2010.

I’ve updated the returns through yesterday. Whenever 125 or more ETFs are sold:

3-months later the NASDAQ jumps 12.8%
12-months later the NASDAQ rips 36.8%
24-months later the NASDAQ zooms 72.07%

For those keeping score, since August 5th’s plunge, the NASDAQ has gained 13.4% in just over 2-months…we believe we are in the early innings of this signal.

And if this doesn’t get you excited, I’ve got another reason to own Tech stocks now.

It comes down to momentum. The month of September clocked a gain of 2.48% for the tech-heavy NASDAQ 100. This was the best September performance since 2013.

Turns out, strong Septembers are bullish omens for Q4.

Since 1984, the average gain for the NASDAQ in the months of October – December is a juicy 6.08%.

Not bad.

BUT whenever September gains at least 2%, the following 4th quarter climbs to 9.1%! Don’t fade strong September momentum:

Putting all this together, we’ve got a cocktail for solid gains into year-end. Use any potential October surprise weakness as a buying opportunity.

That’s how we stay ahead of the game at MAPsignals…follow the money into the best stocks.

Here’s the bottom line: Tech stocks have languished recently. But they’re ripe to climb soon.

We’re in the midst of an ETF liquidation oversold signal that lasts for months and years. Couple that with the evidence that big Septembers tend to see outsized outperformance in Q4…you’ve got a powerful backdrop to own growth stocks.

And the best news is MAPsignals finds the explosive high-quality opportunities loved by institutions.

Don’t follow the never-ending negative headlines.

Follow a map.

Right now, the NASDAQ is the destination.

If you’re a professional money manager, RIA, or are a serious investor, get started with a MAP PRO subscription today.

It’s a great way to navigate uncertainty!

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@mapsignalsOctober 7

How to Buy Low at All-Time Highs

Indices keep climbing. After posting a 26% total return last year, the S&P 500 is up another 20% YTD.

As this bull market has blossomed, leadership has really broadened out.

Here’s how to buy low at all-time highs.

This rally’s proven it’s not a one trick pony.

After underperforming in the first half, the S&P 500 Equal Weight Index rose 9.1% in Q3, easily besting the tech-heavy S&P 500’s 5.5% advance.

Whenever one sector cools off, another steps up to power the market’s next leg higher. This bullish rotational action keeps happening again and again.

We know it’s tempting to think that there’s nothing left to buy. All the good news must already be priced in by now, right?

Judging from Wall Street’s latest worry list, you’d certainly think so. It’s even longer than usual.

Popular scare stories include the recent flare-up in the Middle East, to the pace of Fed rate cuts, recession fears, high valuations, election uncertainty, and October’s weak seasonal track record.

The notion that “all the good news is already priced into stocks” sounds catchy but doesn’t really hold up.

Today we’ll show you five underappreciated, bullish macro tailwinds that signal new all-time highs loom.

Then we’ll show you three lagging sectors that offer the best bang for your buck as this broadening bull market just keeps on charging.

Five Catalysts for Further Highs in Stocks

Let’s start with the recent spike in geopolitical risk in the Middle East. Most people think geopolitical flare ups are an obvious reason to sell stocks. This is understandable but ill-advised.

History shows major geopolitical scares typically don’t hold stocks back for more than a few weeks.

Iran bombed Israel on April 15. On April 29, we published Don’t Overreact to Geopolitical Headlines. After a brief sell-off, the S&P 500 was 3.6% higher a month later and 9.9% higher 3 months later.

We’ve analyzed 29 geopolitical events since 1940, ranging from wars to terrorist attacks to pandemics.

While the S&P 500 has averaged short-term losses of 1.4% and 0.9%, respectively, a week and a month after major geopolitical events, it hasn’t paid to cash out.

On average, the S&P 500 was up 1.6% three months after geopolitical events. Even better, the index chalks up 5.8% and 12.1% gains after six and 12 months, respectively, both of which are way above average.

Our #1 reason stocks can keep rallying is that geopolitical risk is highly unlikely to hold stocks back for long.

OK let’s shift gears and uncover other underappreciated macro equity tailwinds.

We know stocks follow earnings. Both keep hitting new all-time highs.

Lower short-term rates (controlled by the Fed) aren’t the only reason corporate profits are ramping.

A trifecta of under-acknowledged macro themes is also boosting earnings. These include dollar weakness and sharp falls in both energy prices and long-term interest rates (chart).

Note the 1Y returns for each of these benchmarks:

Let’s unpack why these three macro dynamics are positive for stocks.

We’ll start with the big drawdowns in long-term interest rates and oil prices – these are the 2nd and 3rd catalysts this bull market has further to run.

Many investors dismiss the bullish stimulative benefits of lower oil prices and long-term rates arguing their declines are harbingers of economic weakness.

While it’s true rates and oil usually decline in recessions, that’s not why they’re falling now.

Low oil prices are a function of excess supply, from the US, the world’s biggest oil producer, and OPEC+. Global demand has been very steady. Even geopolitical risk hasn’t been enough to keep crude from falling.

As for the collapse in long-term bond yields, that’s been a function of falling inflation, not weak economic growth. The latest Atlanta Fed GDP Now Q3 real GDP forecast stands at a healthy 3.1%. It’s been in the 2-3% range for months.

The reality is sharp drops in oil and long-term rates are a net positive for the economy, earnings and stocks.

And history says their stimulative benefits aren’t yet fully priced into stocks.

Check out this next chart.

Since 1980, the S&P 500 has averaged an 18.9% gain in the 12 months following 15%+ declines in oil prices and 10-year Treasury yields (chart).

This is in stark contrast to the 5.2% subdued returns for large caps when oil and rates have both gained 15%+:

Can this bullish situation get better? YES.

The 4th underappreciated macro catalyst this bull market isn’t over is persistent dollar weakness.

S&P 500 companies generate roughly 40% of their sales overseas, led by the tech and materials sectors with a whopping 58% and 56% respective international sales tallies (chart).

When the dollar falls, overseas sales and EPS are worth more when translated back into US dollars.

It’s no surprise the S&P 500 bull market started exactly when the greenback’s last bull market ended in October 2022. The Dollar Index is down 11% since with half that decline coming in the past 12 months.

Expect the dollar to remain soft as the Fed continues cutting rates, making greenbacks less attractive to global investors.

While other big central banks like the ECB, BOE and Bank of China are easing too, they started sooner and so have fewer rate cuts left to do.

Here’s the percentage of international revenues by S&P 500 sector:

Reason #5 this bull market isn’t over is investor positioning. At MAPsignals we’ve learned that positioning is key to stock performance. The big money watches it like a hawk.

It’s a contrarian indicator. When everyone’s bullish on something it’s time to lighten up because there’s no one left to buy. On the flip side, when everyone’s scared to death, it’s time to back up the truck.

Right now, the market’s huge run up and Wall Street’s long worry list, has investors hedging their bets. They’re crowding into low volatility stocks which are overrepresented in counter-cyclical sectors like utilities, staples, telecom and defensive corners of real estate.

Check out this chart.

High beta stocks normally outperform low volatility stocks by 2.5% in any given 6-month period because they tend to have faster long-term growth prospects vs low volatility names.

But right now, the opposite is happening. Low volatility stocks have outperformed high beta stocks by 8% over the past 6 months.

That’s a whopping 10.5% better than average (chart) and shows the crowd is cautious.

This defensive investor positioning is a bullish signal for the overall stock market.

When bull markets end, investors are tripping over each other and reaching for risk. The opposite is true today.

The crowd is nervous and positioned for bad news. They’ll be most surprised by better than feared news-flow and will be forced to chase stocks higher as that happens.

Defensive positioning signals the pain trade for stocks is higher.

Below shows how we are in the lower threshold tilted in favor of low vol equities. It’s paid to add risk when folks are crowding into safety areas:

Now, where can investors find appealing valuations?

Stay with me.

How to Buy Low at All-Time Highs

We’ve made the bullish macro case for stocks. Now let’s tackle portfolio construction.

The constant rotations markets have experienced this year is proof that hunting for underappreciated values is being rewarded.

With that in mind, we screened the market to see where investors can get the most bang for their buck.

The PE to growth (PE/G) ratio measures value for money. The PE/G ratio = 12MF PE / Forward EPS growth.

The holy grail is finding a sector with accelerating EPS growth and a forward P/E below its 12MF EPS growth rate. That produces a PEG ratio under 1.

It’s hard not to consistently outperform over the next 12 months when you buy sectors with PEGs <1.

Here’s why: Investors think the forward EPS forecasts are too high so they refuse to pay up, keeping valuations low.

But as the macro and sector news-flow continue to clear a low bar, coming in better than feared, the sector takes off as the crowd starts to believe the forward EPS are more realistic.

This dynamic generates significant alpha as the sector is re-rated higher.

The challenge in practice is that low PE/G ratios aren’t easy to find two years into a bull market.

The S&P 500 is up roughly 64% since its October 2022 intra-day bear market low of 3491.

Our analysis revealed only 3 sectors trading at a forward PE to growth ratio of less than 1.

Check out the table below.

The S&P Small Cap 600, the S&P Mid Cap 400 and the S&P 500 Health Care sector made the cut.

Sentiment surveys show most investors are still heavily underweight on all three.

Remember, you want to be where the puck is going, not where it is now.

As we constantly prove over and over again, there’s always opportunity under the surface. Plenty of small, mid, and healthcare names litter our Top 20 list.

When value areas are under institutional sponsorship, that’s a winning ticket.

Bringing It All Together

Stocks have had an amazing run. Resist the natural urge to sell. Equities will be even higher by year-end.

The notion that “all the good news is already priced into stocks” sounds catchy but doesn’t really hold up.

Fed easing isn’t the only reason to like stocks. A bullish trifecta of less discussed, macro tailwinds including weakness in the dollar, oil and long-term rates will also keep boosting the economy, earnings and equities.

Defensive investor positioning is yet another underappreciated bullish signal for the stock market.

When bull markets end, investors are all bulled up and reaching for risk. The opposite is true today.

Lastly, history shows major geopolitical scares typically don’t hold stocks back for more than a few weeks.

The S&P Small Cap 600, the S&P Mid Cap 400 and the S&P 500 Health Care sector offer the best bang for your buck 2 years into this bull market with PEG ratios under 1.

If you want to find specific small cap, mid cap and all cap health care stocks ramping with Big Money support, get started with a MAPsignals PRO subscription. It’ll get you access to our portal that updates every morning, showcasing the exact tickers getting bought and their scores.

MAP your own stocks and ETFs. AND you’ll get our prized Top 20 list in your inbox every Tuesday!

There are plenty of winning stocks to pick up on sale before the next leg higher. If you’re a

Registered Investment Advisor (RIA) or are a serious investor, use a MAP to find them!

Invest well,

-Alec Young

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@mapsignalsOctober 3

2024 October Surprise Playbook

October brings falling leaves, pumpkins, and spooky Halloween.

It’s a season of change.

The same goes for election years in the stock market.

Here’s your 2024 October surprise playbook.

The term October surprise dates back to the 19th century as presidential elections routinely experienced unexpected events heading into November.

Recent notable October surprises include:

1968 Humphrey’s Halloween Peace
1972 Kissinger’s Peace is at hand press conference
1980 Reagan’s American hostages held in Iran
2000 Bush’s drunk driving report
2008 record rise in unemployment
2012 Hurricane Sandy
2016 email scandal
2020 COVID White House outbreak

Could there be an October surprise in 2024? My vote is yes.

Whether or not October surprises influence elections is up for debate. What isn’t, though, are the powerful patterns that exist in stocks in the 10th month of the year.

Today we’ll revisit a powerful election study we showcased months ago highlighting the spooky returns typical of October.

We’ll take it a step further, unmasking how you can play this setup to your advantage.

Don’t get scared if 2024 brings an October surprise.

Get prepared!

2024 October Surprise Playbook

In our ultimate election year playbook, history revealed how stocks tend to sputter in September and October heading into the vote.

While September closed up 2%, the best since 2013, don’t forget about the big 4% drop to begin the month. 2024 has seen massive performance of +20.8% with 3 notable setbacks along the way:

Now that October is here, don’t expect smooth sailing. Since 1928, election year Octobers see the S&P 500 drop .3%.

While there is no guarantee what the future holds, don’t be surprised if October brings equity weakness:

We’ve been on record voicing how you’ll want to buy any pre-election dips. When you slice up October election year performance, a powerful pattern emerges.

Turns out, the brunt of October weakness hits in the first half from October 1st through 15th. Check this out.

Analyzing election year Octobers since 1988, the first half sees the S&P 500 drag 2.83% before firming up in the back half.

Additionally, this anomaly can be seen in both the tech-heavy NASDAQ 100 as well as the small-cap Russell 2000.

Importantly, bumpy Octobers pave the way to jumpy Novembers and Decembers:

Hopefully your eyes are zeroing in on the powerful setup. October dips tee up big rips…especially for small-cap stocks.

The average 7.3% surge in the Russell 2000 in November and December of election years only reinforces our overweight stance in smaller capitalized firms into next year.

And our unique Big Money lens agrees. Our Big Money Index (BMI) continues to break higher week after week, highlighting institutional sponsorship of small- and mid-caps…

The past 4 weeks of money flows shows heavy appetite for smaller cap companies with 81% of buys targeting market caps below $50 billion:

And to be clear, off-the-run small- and mid-cap stocks have been beaming all year in our data. When you dive below the surface, we find all sorts of single stock stories working.

One example is Allison Transmission Holdings (ALSN). With a rock-solid MAP Score of 79.3, indicating healthy institutional support alongside favorable forward earnings growth, that’s the go signal.

Below showcases how ALSN has made our rare Top 20 list 6 times this year. Typically, we find recurring inflows power stocks higher and higher.

That’s the stairway to heaven that all great equities exhibit:

For me, the playbook is simple.

Election mudslinging is well underway. Expect an October surprise to jitter markets.

But don’t get spooked out of stocks. Instead, strap on the helmet and buy any pre-election dip that typically emerges in the first half of October.

Focus on off-the-run stocks that the media doesn’t cover. That’s where institutional investors find alpha.

Beginning in November, the bearish costumes often fall to the wayside and markets begin a swift recovery.

Don’t follow the headlines…follow the money.

Get a MAP!

Here’s the bottom line: October surprises date back to the 1800s. Heading into presidential elections, unexpected events routinely surface out of the blue.

Just don’t let these surprises spook you out of stocks.

History shows that early October weakness is met with back-end October stabilization. Furthermore, November kicks off bullish season for equities.

If you’re like me and want to kick start your portfolio during this spooky period for markets, get hedge fund quality research with our MAP PRO subscription.

Not only will you learn what truly moves markets and stocks… money flows…

You’ll also find under-the-radar stocks loved by institutions.

That’s the October surprise your portfolio will thank you for!

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@mapsignalsSeptember 26

Trillion-Dollar Money Market Bubble is Set to Unwind

For years now, a popular mantra has been cash is king.

Wealthy households poured into money markets at a breakneck pace.

We are now witnessing the unfolding. The trillion-dollar money market bubble is set to unwind.

Ring ring.

Hello?

Hi Mrs. Debbie, Mike here with XYZ Financial, it’s time to discuss where to park your cash NOW.

That’s the conversation I envision many financial advisors (FAs) were having back in 2022 as yields surged.

As interest rates climbed, the allure of high-yielding cash not only made sense, but also good fortune. Earning a risk-free 5%+ return has been a boon!

But as they say, all good things must end…ushering in waves of change.

As interest rates are now finally on the decline, well-to-do investors face a looming dilemma…where to redirect this cash hoard that’s losing its luster day by day.

Today, I’ll reveal startling stats on the growth of money market assets. We’ll cover which areas suffered during this monster crowd-chase, and ultimately make the case for the beneficiary of the latest trillion-dollar migration that’s coming.

…and there’s evidence this money wheel is already in motion.

### Trillion-Dollar Money Market Bubble is Set to Unwind

Econ 101 taught us the power of supply and demand.

When income-starved investors are greeted with a new-found cash stream, they pounce.

You can see how from Q1 2022 to Q2 2024, total money market assets climbed from $5.1 trillion to $6.5 trillion:

When we zoom in, we can clearly understand how the rise in rates correlated with the increase in money market asset demand.

The call from FAs to start the money migration back in 2022 was met in full force:

This week I took the liberty to break down the massive money market bubble by wealth percentiles.

Specifically, I wanted to learn which strata of earners were mostly responsible for the big capital influx into MMs.

For this exercise, I bucketed money market assets into 4 wealth groups:

Top 1% wealth percentile
The 90-99th percentile
The upper middle 50-90th percentile
And finally, the bottom 50th percentile

Each of these wealth groups vary based on the state you reside in. But a good idea for a 1% earner is those making well north of $500k per year.

The top 10% bucket are typically the 6-figure crowd.

It should be no surprise that wealthy investors are responsible for the lions’ share of money market asset growth.

Check this out. As of Q2 2024, the top 1% of households controlled 35.3% of MM assets. The 2nd tier, 90-99th percentile made up just over 41% of the total pie.

For those keeping score, that’s 76% of household MM assets. But what is striking is the growth of cash assets from each cohort.

The top 10% of households were responsible for 80% of the money market asset growth as just over $1 Trillion.

This is the wealth transfer that’s building up a lot of potential energy soon to be put to work elsewhere.

When one asset class thrives, another suffers.

Notice that beginning January 2022 through June 2024, popular income-equities massively underperformed, indicating dividend stocks were funding the explosion in money markets.

From 2022 – June 2024, the S&P gained 18.79%. Under the surface saw incredible underperformance from dividend sectors:

Real Estate stocks ($XLRE ETF) fell 19.22%
Utilities ($XLU ETF) barely eked out a gain of 3.26%
Consumer Staples ($XLP ETF) flatline with a 5.3% gain

Back in June, we were early in suggesting a monster reversion trade was coming. After the June CPI cemented the case for the Fed to finally start cutting rates, a violent money wave was set in motion.

Small-caps rips. Breadth improved.

But also hidden under the surface was a monumental money-shift into dividend-oriented equities.

Using the same framework as above let’s look at the sector performances since July. That’s when the money migration was set in motion.

From July 1st – September 25th:

High-yielding Utilities have gained 19.2%
Real Estate isn’t far behind jumping 18.2%
Staples ripped 9.3%
The S&P 500 barely budged eking out a gain of 2.7%

Without question, money market assets are searching for a new home as rates fall. Odds are now calling for Fed Funds rates to reach a 3-handle in a year+.

Now I’m imagining FAs making this call to their clients.

Hey Mrs. Debbie, it’s time to jump off the money market horse and look at dividends as an alternative.

And my recent FA channel checks suggest this is the case. Of course, there are other income alternatives to mention like munis and corporates…those do have a place for specific investors.

But last I checked, Warren Buffett didn’t get rich off munis!

Seriously though, the biggest prize resides in owning all-star companies that have wonderful businesses, high profit-margins, and consistent dividend growth.

That’s the holy grail of investing as far as I’m concerned. Don’t focus on the highest yielding stocks…those yields won’t keep up.

Instead focus on compounders. That’s the ticket.

And the other evidence that this money wheel is rolling is by looking at the Big Money Index (BMI). It’s ramping as plenty of high-quality income stocks are benefiting from the trillion-dollar money wave:

Calls are happening all over the country right now. Cash is no longer king.

Hopefully you see the call in front of you today.

There’s a cash bubble. Those assets are searching for a new home. Elite dividend growth stocks are prime beneficiaries in 2025.

That’s why we released an all-star 32 stock report focused exclusively on this theme. MAP PRO subscribers can find it here.

Don’t wait for the media to blow the bullhorn on dividend stocks…you’ll miss the boat.

Just follow the money…and it’s already in motion.

Here’s the bottom line: Wealthy investors have a looming choice. The trillion-dollar money market bubble is set to unwind.

Dividend stocks were abandoned as the thirst for yield gathered steam.

The evidence highlights how this crowded trade is reversing course. Dividend areas are rerating by the week.

2025 is setting up to be a monumental year for high quality superstar dividend growth stocks.

The call to consider other income alternatives is in motion. Now’s a wonderful time to take advantage of one of the biggest themes we are witnessing.

If you’re a serious investor, money manager, or RIA – kickstart your research with a MAP PRO subscription. Follow the money-shift in real-time.

And get your hands on our latest 32-stock report, highlighting stocks that are set to thrive with this new money-flow tailwind.

Don’t follow the news. Follow the money with a MAP!

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@mapsignalsSeptember 23

Buy Dividend Growth Stocks as Fed Cuts Interest Rates

Let’s discuss the huge money-elephant in the room.

Millions of investors hiding in money market funds are about to see their income fall in a big way.

With the Fed finally cutting rates, yield hungry investors will have to work harder to generate income.

Today, we’ll show you why now’s the time to buy dividend growth stocks as the Fed cuts interest rates. Then we’ll show you how to maximize the theme with timely ETFs and sectors.

And the income rotation is already underway.

Money in Motion

There’s a record $6.3 trillion crowding in money market funds amid the lure of 5% risk-free returns (chart).

But the Fed funds futures market predicts money market yields will fall to just 3% by the end of 2025.

Bond funds aren’t the answer. While bonds generate big capital gains as yields fall, that’s already happened. Yields on short, medium and long-term bond funds are all down big in anticipation of Fed easing.

By contrast, dividend strategies still have plenty of upside. It’s no surprise dividend paying S&P 500 stocks are up 14.5% vs. only 8.1% for non-payers YTD.

Since the great rotation that began on 7/11/24, dividend-yielding S&P stocks are up 8.4% vs just 5.2% for non-payers. Even more striking is the fact that stocks with a 3% yield or higher have gained 10.9% in the same period.

The pivot to dividend stocks is money in motion. It’s only a matter of time before the crowd recognizes that money-market rates are a sinking ship:

Once large income shortfalls hit money market investors…they’ll be hunting for an income-generating alternative.

Buy Dividend Growth Stocks as Fed Launches Rate Cuts

Albert Einstein once described compound interest as the “eighth wonder of the world.” He was 100% right.

How else could low single digit stock dividends account for a stunning 37% of the market’s long-term returns (chart)?

Since 1930, the S&P 500 has returned only 6.6% a year excluding dividends vs. 9.8% with those payouts reinvested.

Below you can see how reinvesting growing dividend payouts has helped equity returns over time:

Let’s face it, dividends make a huge difference!

Dividend growth explains the outsized impact of equity income on long-term stock performance.

The ability of high-quality companies to reliably grow their payouts year-in and year-out takes the “compounding” effect Einstein referenced to the next level.

You’re not reinvesting the same amount every year. The annual growth of your reinvested payouts supercharges long-term compounding.

Since 2000, S&P 500 dividends have more than quadrupled from $139B to $588B in 2023 (chart).

That equates to 6.8% annual income growth. It doesn’t take much annual growth to generate huge long-term gains.

Better yet, despite record payouts, the S&P’s payout ratio – the percentage of profits its constituents use to cover dividends – is still only 35%, well below its 50% long-run average. That leaves lots of room for future dividend appreciation!

Huge income growth is welcome news any day, but it’s especially valuable with the Fed cutting interest rates and bond yields melting lower!

Let’s shift gears. Growing dividends in a falling rate environment isn’t the only reason to like dividend growth stocks.

Volatility hasn’t been a huge problem this year. Stocks are doing great as the rally broadens out.

Even with all the recession and election handwringing, market drawdowns have been short and sweet.

But investor surveys consistently show market volatility as the #1 reason they shy away from stocks.

Here too, dividends can help. Check out this next chart.

Since 1990, companies with the financial strength to grow their dividends outperformed during volatile markets.

The $VIX is the leading gauge for measuring S&P 500 volatility.

In all months when the VIX Index increased, dividend growers beat non-dividend paying stocks by an average of 1.06%.

Even better, the more volatility rises, the more dividend growth stocks outperform.

In months when the VIX rose over 20%, dividend payers outperformed by 2.06%.

Holding dividend growth stocks can enhance performance whenever volatility rears its ugly head:

What this Means for Your Portfolio

We’ve made the macro case for dividend growth stocks. Now, let’s tackle portfolio construction.

We know big yields are tempting, but oftentimes, a high dividend yield signals distress. The payout may be high because the company’s shares have either fallen due to poor fundamentals, or it’s the only way to entice investors to buy the stock, or both. Think CVS ($CVS), Walgreens ($WBA) or AT&T ($T), ouch!!

Either way, it’s a head fake and that juicy yield is often wiped out by a few months of capital losses.

It’s no surprise dividend growth strategies consistently outperform their high dividend yield counterparts (chart).

The bottom line is quality matters. Dividend growth stocks have a return on equity of 27% vs. only 17% for high dividend stocks. It’s impossible to consistently grow your dividend without impressive financial strength. Over time, that beats high, but iffy, yields.

Vanguard’s $100B Dividend Appreciation ETF, VIG, tracks S&P’s Dividend Growers Index which requires 10 years of dividend growth for inclusion. VIG yields 1.9% and sports a rock-bottom 0.06% expense ratio.

VIG’s 64 MAPsignals’ map score shows accelerating institutional buying without being anywhere near overbought (think 80+).

By contrast, our ETF rank for the smaller, $72B Vanguard High Dividend Yield ETF, VYM, also a category leader, is only 61.

VIG’s more cyclical sector allocation is yet another reason to favor dividend growth over high yields (chart).

Regular readers know we’re bullish on stocks because we believe a soft landing is in the cards.

Cyclical sectors have been held back by relentless recession worries. As the economy continues to hold up, expect cyclicals to reassert their leadership.

As for defensives, if the economy dodges recession and the Fed isn’t forced to cut rates far more than currently expected, expect these rate sensitive sectors to fade fast as interest rate declines slow.

Dividend growth is better positioned for an economic soft landing thanks to its greater exposure to the growthy tech and health care (think biotech & medical devices) sectors, coupled with lower allocations to defensive utilities and the sickly energy patch.

Note that, over the last decade, energy is the worst performing S&P 500 sector with only a 3.3% annualized return. Utilities have also underperformed the S&P 500’s 12.9% gain, chalking up just 9.1% annualized gains.

Make sure to get access to our Top 32 list of dividend-growth stocks for 2025 only for MAP PRO members. Subscribe and be prepared for what we believe is a big portfolio reweighting towards dividend-rich companies next year.

Let’s wrap up.

Bringing It All Together

Fed rate cuts are bullish for dividend growth stocks as money market yields finally start falling.

Meanwhile, bond yields have already collapsed in anticipation of Fed easing, reducing bond funds’ income appeal.

Plus, dividend growth not only cushions stocks when volatility rises, reinvested dividends contribute a surprisingly high 37% of the stock market’s long-term gains.

The dividend “sweet spot” isn’t risky, sky-high yields. It’s high-quality stocks with 1.5%-3.5% yields and strong track records of doubling their payouts at least every decade.

Many such dividend growers live in the S&P 500, whose dividends have more than quadrupled from 2000 through 2023. Healthy corporate balance sheets and low payout ratios mean more dividend hikes loom.

If the economy dodges recession as we expect, and the Fed isn’t forced to cut rates far more than currently anticipated, expect the huge rip in defensive sectors to fade fast as interest rate declines slow.

Dividend growth is better positioned for a soft landing than defensive leaning, high yield dividend strategies.

It has a much larger 40% combined weight in the growthy tech and health care sectors, coupled with far lower allocations to counter-cyclical utilities and the sickly energy patch.

VIG brings it all together, offering a convenient, low-cost way to target this timely theme. And our ranking process agrees!

So just sit back and let compounding do the rest. And remember, dividend growth is the best cure for falling rates and any future market volatility.

Lastly, there are great stocks positioned well for this money in motion theme. If you want our latest star-studded list of 32 companies loved my institutions, get started with a MAP PRO subscription today.

Invest well,

Alec Young

MAPsignals

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