Better Beneath the Surface

It’s a market of stocks.

Sometimes we can lose sight of that simple fact. We live in a world dominated by indexes. The media tells us all about the S&P 500, the NASDAQ, and the Dow Jones Industrial Average. Our portfolios are benchmarked against those same indexes, or ones just like them.

It’s hard to blame anyone for this flaw – huge baskets of stocks are the easiest way to describe market action, especially in a world where time always seems to run short. The problem is, the indexes most of us see aren’t perfect or complete descriptors. Most are weighted by market capitalization, meaning the largest companies like Apple and Microsoft matter the most. The Dow Jones Industrial Average is allocated by price, so the stocks with the highest price per share hold the largest weights. Both approaches have their merits, but they can obscure what’s happening beneath the surface.

Right now, those approaches are hiding strength.

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The 10 Charts to Watch in 2023

It’s a new year, so there’s no better time to take a step back and think about what will drive markets in the months ahead.

The Components of Inflation

At his November 30, 2022 speech, Federal Reserve Chair Jerome Powell described the 3 primary components of inflation – Core Goods, Housing Services, and Core Services less housing. Core goods drove the first wave of this inflationary cycle, as surging demand for tangible products during the pandemic came face-to-face with sagging production and supply chain disruptions. The next wave was led by a spike in the cost of housing.

Core goods inflation peaked in early 2022, and housing will likely peak around the middle of this year (see Figure 3 below). The Fed will look past what it sees as ‘transitory’ declines in core goods and housing inflation, and instead focus on the price of core services. These charts are from his presentation:

The Tightening Cycle

Powell and Co. claim they’ll do whatever it takes to cool inflation, even if it pushes the US economy into recession. It’ll take higher interest rates for longer, according to their models.

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A Good Time to Pick Stocks

It was a great year to be a stock picker.

If you picked a handful of random stocks each year on January 1st, weighted them equally in a portfolio, and then remained invested in those stocks until the end of the year, you’d find yourself underperforming index returns most of the time. It’s one of the best-known secrets of investing: a small group of stocks have generated most of the returns for US investors over the last century or more. That’s part of what’s made index investing so popular. Buying all the stocks ensures you’ll own the few on the fat tail of the distribution curve, and history has shown those great returns are enough to offset the detriment of also owning the laggards.

2022 has been an exception to the rule. More individual stocks are outperforming the index than in any year since 2009.

It’s a sharp divergence from the last few years – most notably 2020 – where calendar year returns were especially dominated by a handful of names. You’ve probably heard of some of those big winners from 2017 -2021. Apple. Amazon. Microsoft. Alphabet. The biggest stocks (which of course are the largest components in market cap-weighted indexes like the S&P 500) dragged indexes higher, while many non-growth stocks languished. In 2022 it’s been the opposite. Value and safety sectors like Energy, Industrials, Health Care and Consumer Staples have led the way. Mega cap tech, on the other hand, has been punished. That’s helped 58% of S&P 500 stocks to post better returns year-to-date than the index’s 19% decline.

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The 8 Charts That Defined 2022

Another year is nearly gone, and it’s been one for the books. Let’s take look at what made 2022 what it was.


Inflation. How could a discussion of the last 12 months start anywhere else? Prices spiraled out of control in the aftermath of the unprecedented fiscal and monetary stimulus that accompanied the pandemic. At first, the surge in prices was led by goods. With spending on services crimped by lockdowns, people instead spent on things they could touch and hold. At the same time, supply lines for those goods were disrupted.

The economists were right, in part. Those price spikes were transitory. It just took much longer than they’d initially expected for the price pressures to subside. The prices for core goods and energy appear to be stabilizing.

We can’t say the same for the price of services, though. Inflation may have peaked, but the days of 2% per year seem far away.

The Fed

It’s the job of the Federal Reserve to maintain price stability in the United States. In March 2021, when the monetary authorities still believed in the merits of ‘transitory inflation’, the Fed forecasted interest would remain at the zero lower bound until at least 2024.

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I’ve Got Big News!

Many of you have been asking me for more in-depth research. Now it’s here.

I’ve officially launched Grindstone Intelligence, an independent research company with weekly and monthly updates AND a premium newsletter!

For more than three years now I’ve been publishing my thoughts here on Means to a Trend. When I started, I had no idea what I wanted to accomplish, who I was trying to reach, or what I even wanted to say. I spent all day reading about companies, keeping up to date on macro news, tracking intermarket relationships, and looking at charts. But I didn’t have anything tangible to show for it.

Means to a Trend offered the solution, and it came with an added bonus: I could pass along what I was learning to a broader audience, helping them to make better investment decisions.

Pumping out research was harder than I thought. Without support from friends, family, my wife, and, most importantly, all of you that subscribe, I never would have kept going. But people liked what I was doing, and today, Means to a Trend is bigger and better than ever. 

Now it’s time to take things to the next level. Means to a Trend is now part of Grindstone Intelligence, LLC, a new, independent investment research firm. Don’t worry – I’ll still be giving you free, regular content here on MTAT. But I’ll be doing even more over at Grindstone. We’ve already launched two free publications – The Weekly Wrap and a Mid-Month Market update – and today, we’re making our premium content available to the public. For a Quarterly Membership price of just $59, you’ll get access to our exclusive monthly newsletter, including a deep-dive, top-down, technical market review, trade ideas, S&P 500 sector ratings, and our model US Equity Portfolio.

We’re also offering affordable content services to advisors who are looking to boost their online presence without hiring a full-time creator. If you’ve got questions about that, hit me up.

I’m excited about the future of Grindstone Intelligence, and I’m even more thrilled to be able to give you guys more actionable content – but I need your help to get things up and running. That’s why I’m offering Means to a Trend followers an exclusive discount.

Use the code MTAT2022 at checkout, and you’ll get the first 3 months of Premium access for just $20! Want an annual membership instead? Use the code 1YEAR to get $100 off an Annual Membership. That’s just $99 for a whole year of Premium Access! But don’t wait – these exclusive offers expire at midnight on January 16th! JOIN NOW

Unsure about what you’re really getting? Fill out this contact form, and I’ll give you FREE access to the December Playbook, included more than 50 of the most important charts and best setups in the market.

And if you still aren’t sure, that’s ok. Just do me a couple favors. Head on over to and subscribe to receive our free content. Then follow us on Twitter, LinkedIn, and Facebook, where we’ll be posting more charts, ideas, and market news throughout the day.

And if you ever decide you want to take things up a notch, you know where to find us:

Energy Stocks Running Out of Gas

In a year that’s offered few places for investors to hide, Energy has been a bright spot. The growth-dominated Nasdaq is down nearly 30%, and bonds are on track for their worst year in at least 50 years. Meanwhile, the S&P 500 Energy sector hasn’t spent a single day in negative territory.

It seems that run of outperformance has come to an end. Crude oil dropped to its lowest level of the year last week, closing near $70 a barrel. That’s 45% below the March highs.

At $70, prices are still well above the average cost of production globally and far above the sub-$40 levels seen just two years ago. That hasn’t kept Energy stocks from falling, though. Energy dropped 8% last week, lagging all other sectors as the S&P 500 dropped more than 2%.

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Is it Time to Buy Precious Metals Again?

Metals pushed to the front of the pack in November. Gold and Silver both had their best month since 2020, and Copper prices rose by more than 12%.

At the end of October, it looked as though Gold prices were stuck beneath the low end of their 2020-2021 range and headed back toward their COVID lows. The problem for precious metal bears, though, was that Gold’s decline hadn’t accelerated when those lows were initially broken. Even worse, Silver prices had failed to confirm the breakdown. In fact, while Gold was setting new lows, Silver was setting higher ones. Silver tends to lead while precious metals are rising and lag when metals fall, so it was unusual to see Gold falling while its counterpart was putting in what looked like a healthy base.

Silver looks even better today.

The 2019-2020 highs provided a perfect springboard to launch Silver back above those 2021 lows, and it wouldn’t be surprising to see it retest multi-year highs. For those of you keeping score, that would be 25% higher from here.

Gold is battling near-term resistance at its August highs, and it’s yet to convincingly exceed the 200-day moving average. Still, the chart is in better shape than it was a month ago, and if prices can hang above 1800 for a week or two, there’s no reason it couldn’t join Silver in a retest of the highs.

The fate of metals may rest in the hands of the US Dollar.

Dollar strength has been a headwind for equities and metals for much of the year, as it rose 20% from January through September. With markets increasingly anticipating a slowing in Federal Reserve tightening actions, though, the greenback is giving back some of its gains. On Thursday, the US Dollar Index closed below its 200-day moving average for the first time in well over a year.

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That Was One Wild Week

I hope you were wearing your seatbelt, because that week was one for the books.

The reaction to Thursday’s CPI report alone was worthy of its own lengthy analysis. A decline in used car prices and a deceleration in the price of medical care services helped drive core CPI down to 6.3%, 0.3% lower than last month’s 40-year high. The updated inflation data reinforced a growing consensus that the Fed will deliver a 50 basis point hike at next month’s policy meeting, a decrease from the 0.75% increase we’ve gotten after each of the last four.

Interest rates cratered on the news, dropping almost 30 bps on Thursday alone and 40 bps for the week. Round numbers can act as psychological areas that offer support or resistance, and for rates, those levels have often been the site of significant reversals. After the drop last week, 10-year Treasury yields are back below 4%.

Lower rates, of course, are a tailwind for equity valuations, especially for companies with high expected earnings growth rates. That helped Growth stocks have their best week relative to Value in 4 months. The new relative lows we were seeing to start the month are now starting to look more like a failed breakdown. From failed moves often come fast ones in the opposite direction, so it wouldn’t be surprising to see the ratio revert back to the mean, near the 2021 lows.

The Nasdaq Composite, filled with growth-oriented tech stocks, jumped 8%, it’s best week since March. The index is now back above 11000, which marked the 131.8% retracement from the COVID decline.

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Talking with Traders

I recently sat down with Traders Corner founder Garth Mackenzie to talk markets on his podcast. We discussed the current lay of the land, the outlook for inflation, and themes to watch in the years ahead. If you’ve got some time, give it a listen!

You can find Talking with Traders on Apple Podcasts or Spotify, or you can watch it on YouTube

Garth is in his fifth season of the Talking with Traders podcast, and it’s well worth subscribing to for investors and traders, young and old.

Let me know what you think

Nothing in this post or on this site is intended as a recommendation or an offer to buy or sell securities. Posts on Means to a Trend are meant for informational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in posts. Please see my Disclosure page for more information.

Thanks for reading!

Keeping up with Commodities

Lost amid a week of wild swings in the equity markets were some incredible rallies in a handful of commodities.

Commodities have been a safe haven of sorts in 2022, as both stocks and bonds are on pace for one of the worst years ever. Their relative strength faded as spring turned to summer and the US Dollar continued to soar, but since the Dollar Index peaked September, hard assets have regained some of their luster.

Copper had it’s largest one-day gain in over a decade on Friday.

After the early-summer selloff found support at the old 2018 highs, prices took 4 months to digest the action. Copper is still technically rangebound, but Friday’s 7.6% rally has it challenging the high end of the channel.

Gold had its best day since March 2020.

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