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The S&P 500’s Wild Ride: Big Gains, Cautionary Murmurs, and Strategic Maneuvers

Key Points

  • The S&P 500 is in a new bullish trend since early November, with two significant gaps up since its follow-through day.
  • The Magnificent Seven stocks rebounded after a slow period from August through October.
  • Cautionary signs include disappointing revenue guidance from Cisco, Palo Alto Networks, and ON Semiconductor.
  • We prefer five stocks over SPDR S&P 500 ETF Trust.

The S&P 500 entered a bullish trend in early November, with the SPDR S&P 500 ETF Trust NYSEARCA: SPY having gapped up twice since its follow-through day on November 1. The index surged 7.73% in November. 

An examination of the SPY ETF chart indicates that the index has cleared a resistance area above $451, with the next one above $453. Subsequently, the next resistance level above $459.44, its one-year high, would come into investors’ sight. 

The so-called Magnificent Seven stocks are back on track after a sluggish period between August and October.

These seven stocks that led the market rally in the first half of 2023 are Apple Inc. NASDAQ: AAPL, Microsoft Corp. NASDAQ: MSFT, Alphabet Inc. NASDAQ: GOOGL, Inc. NASDAQ: AMZN, Nvidia Corp. NASDAQ: NVDA, Tesla Inc. NASDAQ: TSLA and Meta Platforms Inc. NASDAQ: META

Tech stocks are the S&P leaders in November; three of the Magnificent Seven stocks belong to that sector, tracked by Technology Select Sector SPDR Fund NYSEARCA: XLK.

Trouble lurking below the surface

All are heavily weighted S&P components, and all are showing gains so far in November, leading the market higher. There’s plenty of upside momentum in the broader index at this juncture, despite some signs of trouble lurking beneath the surface. 

For example, Cisco Systems Inc. NASDAQ: CSCO and Palo Alto Networks Inc. NASDAQ: PANW both fell after disappointing revenue guidance, suggesting business customers were cutting back on tech spending. 

ON Semiconductor NASDAQ: ON is among the S&P’s biggest losers in the past month, dropping 24.24% after guiding toward a weak fourth quarter as the market for EV power chips cools off amid slowing sales. 

Some analysts, including BlackRock’s Jean Boivin, believe high rates still have potential to derail the S&P’s nascent uptrend before year’s end, cutting short the jolly prospect of a Santa Claus rally.

However, in its weekly market commentary issued on November 13, BlackRock noted that AI is likely a market driver going into the future. “The buzz about AI is getting louder, with tech shares maintaining their outperformance and major players getting ready to roll out new AI tools,” BlackRock analysts said.

Nvidia recently introduced new chip enhancements to power greater demand for generative AI and other AI applications. 

Could bank stocks lead market lower?

“That fits with a picture of broader economic activity being subdued. This shows the Fed’s rapid rate hikes are indeed crunching demand,” analysts said.

They noted that those developments, coupled with an easing of pandemic-era supply chain snarls, should contribute to inflation settling down in 2014.

Market performance is cyclical, and dependent upon a wide variety of factors, but despite the current broad momentum in the S&P 500, there’s reason to be vigilant. 

Large number of S&P stocks below 200-day line

According to a November 16 report by Yardeni Research,  36.4% of S&P 500 stocks are currently trading above their 200-day moving averages. In addition, 41.2% of S&P stocks are showing a positive year-over-year price change. Both of those numbers are well below historical averages in bull markets.

There are clearly actionable S&P 500 stocks right now. For example, payment processor Visa Inc. NYSE: V is currently in a buy range, as is Ross Stores Inc. NASDAQ: ROST, but investors should maintain a healthy dose of awareness, should pockets of weakness put a dent in the broad rally. 

Before you consider SPDR S&P 500 ETF Trust, you’ll want to hear this.

usafinancedigest keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. usafinancedigest has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and SPDR S&P 500 ETF Trust wasn’t on the list.

While SPDR S&P 500 ETF Trust currently has a “hold” rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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