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Big Money Index Plummets to New Lows in 2024
If your stocks aren’t holding up this year, you’re not alone.
Most equities are behaving wildly different than major indices.
The Big Money Index plummets to new lows in 2024.
Last week we discussed how a monster reversion trade is coming. The average stock in the S&P 500 is drastically underperforming the overall cap-weighted index.
That theme has only intensified this past week. The BMI has fallen dramatically, shedding points every single day.
On the surface, that could be unsettling…after all, we’re now at levels last seen in November.
For those keeping score, that’s exactly the moment we made the non-consensus call to prepare for all-time highs in 2024.
Boy did it come! The crowd has been stunned to say the least.
But here’s the even better news. Today’s money flow study signals more exciting gains are on the way.
Before we get to that bear-flogging analysis, let’s take the temperature of the overall market.
As the market quietly notches new highs, most stocks are lagging badly.
While the S&P 500 is has clipped a healthy 14.66% return in 2024, the average stock in the index is only up 5.14%.
More to this point, just 24.1% of stocks in the S&P are outperforming the index. Without question, it’s a winner-take-all environment as a handful of equities are holding up the index.
One great way to visualize this drastic dichotomy is to look at the number of stocks above their 50-day moving average.
The S&P 500 is climbing to new all-time highs while nearly 2/3rds of stocks are languishing. As of this morning, only 37% of S&P stocks are above their 50DMA:
To many pundits, this is a cause for concern. But for those that study history, we know that weak market breadth is a positive catalyst for stocks.
Coming into this year, we couldn’t have been more constructive on equities. One of the illustrations we included in our 2024 macro outlook was the fact that narrow leadership is extremely bullish.
Here’s a refresher. Whenever the S&P 500 experiences the lowest quartile breadth reading, 12-months later the index rips 15.4%:
This should make intuitive sense. Whenever the crowd is plowing into stocks left and right, breadth is high, indicating stocks are likely overbought.
On the flipside, when most stocks are shunned, there’s likely value to be found.
Let’s now expand on the current market landscape by looking at what’s going on in the world of institutional trading flows.
Volumes reveal the true appetite for stocks. Handling countless institutional orders over my Wall Street career taught me to respect the ultimate power law in markets: supply and demand.
Our Big Money Index (BMI) is the best real-time gauge for institutional demand at the single stock level.
Falling to 42.6%, this is the lowest reading all year. Below, I’ve highlighted prior falling BMI instances the last 2 years:
A falling BMI tells us a couple of things:
- First, selling is increasing for the average stock
- Second, the number of names getting bought is shrinking
That may sound like a troubling situation…and it could be.
There are no guarantees for the forward trajectory of the market.
That said, being armed with cold-hard data will help with the guesswork.
Turns out, whenever the Big Money Index falls to 43% or lower (like today), the forward returns for the market are well above average.
Not only that, the lower the BMI goes, the stronger the forward returns get. Check out the following chart.
Below plots 3 forward return profiles for the S&P 500 the last 10-years.
In dark blue (the first bucket) we see the average return for the market is upward sloping in all periods on average. The 12-month expected return for SPX is +11%. Not bad.
Contrast that to periods when the BMI is 43 or lower, and you’ll see the 12-month gains jump to 15%.
Finally, to take it a step further, I included forward returns when the BMI reaches the rare oversold reading of 25% or lower.
Low BMI readings are to be cheered…not feared:
This is what the bad news bears miss. Selling in stocks is reaching extreme levels.
As the Big Money Index plummets to new lows in 2024, start building your buy list. Once the BMI starts heading north, the train will have left the station.
The time to act is now.
Focus on the highest quality stocks. Those will be the ones the institutions flock to whenever the tide is ready to turn.
You can find these names on our weekly Top 20 list that spots the rare handful of names under heavy accumulation alongside strong sales and earnings growth.
Let’s wrap up.
Here’s the bottom line: Market breadth is the weakest all year. However that’s a sign that better days are ahead.
Narrow market leadership spells market beating gains a year later. Even better, whenever the BMI falls to levels of 43% or lower, you can expect a big catch up trade to occur.
The old Wall Street adage of buy low and sell high likely had something to do with money flows.
Now you have a MAP to show you the way!
Look, there’s plenty of opportunity out there for your portfolio. If you’re a serious investor, money manager or Registered Investment Advisor (RIA), get started with a MAP PRO subscription.
Let the ultimate power law in markets help your investment strategy.
Money Flows > News Flows
Have a great week!
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