Big Money Index Falls to Lowest Reading in 2024 – April 11, 2024
If you want to learn how markets work, study supply and demand mechanics. When buyers are more aggressive, stocks rally.
When sell orders are increasing, equities fall.
The latter is what is causing the Big Money Index (BMI) to make a fresh year-to-date low. I’ve mapped the BMI to the Russell 2000 (IWM) ETF as the correlation has been uncanny the past year:
Boxed in white shows how stocks are struggling. This gravitational pull on equities has been more pronounced on smaller companies due to recent rising interest rates.
The 10Y yield jumped to 4.55% yesterday, a multi-month high. Notably, there’s been a beautiful inverse relationship between interest rates and small-cap companies.
Below shows an auto-indexed performance of the 10Y yield relative to the S&P Small Cap 600. In late October, yields peaked and stocks began their march higher.
Lately, rates are ripping as small-caps are dipping:
Given the media’s obsession with rising rates recently, you may believe the area is dead money.
But you’d be dead wrong. As I’ve been hinting for nearly a month, a major shift began in mid-March. Brand new leadership was emerging.
Energy stocks vaulted to pole position practically overnight.
I even showcased reasons to believe small-caps will eventually make new highs.
And last week, I noted a very strong case to own Financials.
Those calls were not only grounded in data-driven insights, but more importantly in institutional money flows.
We are single stock evangelists. What major benchmarks do is of less relevance. The portfolio we care about is where the money is flowing.
And high-quality small-cap stocks are thriving in 2024 as evidenced by our latest sector rankings. Technology has taken a backseat to new monies rotating into Energy, Industrials, Materials, and Financials:
This new under-the-surface reality reverberates the top names beaming in our data. This is where our unique lens on the market sets us apart from other research shops.
High Quality Small-Cap Stocks are Thriving in 2024
As I said earlier, if you only focus on popular equity benchmarks, you’ll miss the stocks that matter most.
Every day we score and rank thousands of stocks. Additionally, our power signal overlays a reliable unusual buy and sell measurement.
From here, we isolate the tails… the Top 20 ranked stocks under accumulation. This allows us to see an up-to-the-minute reading of money flows.
Given the monumental shift we saw a month ago, here’s where institutions have been placing their bets.
- 36% of buys went after energy names.
- 21% vaulted into industrials.
- 19% poured into financials.
Those 3 groups alone accounted for 76% of our leaderboard since March 19th:
Mapping out money flows reveals market-crushing opportunity. Keep in mind that each of these signals are individual stocks that have idiosyncratic attributes.
In other words, buying a sector ETF to play a theme may not be as relevant due to the basket makeup.
Let’s look at an example industrial stock that we’ve been all over in the past year. If we rewind the tape to early last summer, I made the bold claim that the 2023 bull market is just getting started.
I noted the broadening out of the market happening in our data. Fresh new small-cap stocks were beginning to show up as Big Money magnets.
Take industrial distributor Core & Main (CNM) as a prime example. Strong high-quality inflows were spotted.
Here you can see 13 Top 20 appearances for CNM the past year beginning when the stock was $25 per share. The recent price is $57:
Now, I bring this company to the forefront because we’ve recently been bullish on industrials…specifically the ones under heavy accumulation.
What made Core & Main worthy of being a Top 20 stock?
It came down to accelerating revenue and earnings growth. That’s what drives big investors into stocks at a breakneck pace.
Last June, estimates pegged 2025 EPS at $2.25. Turns out that was too low. As of this morning, the estimate has jumped to $2.42.
If you want to uncover the best stocks in the market, do 2 things:
- Focus on stocks where earnings estimates are rising
- Zero in on Big Money inflection points – only then is a stock ready to fly higher
So, while small cap indices face headwinds, just know there are plenty under the surface doing just fine.
Playing defense is a great way to underperform over the long-term.
Riding the wave of Big Money in the best stocks is a great way to build wealth over the long-term.
Author: Lucas Downey