Reset Market Expectations as Q2 Looms

The Cboe Volatility Index (VIX) spent the first two months of the year churning under 20

Managing Editor
Mar 31, 2023 at 1:04 PM
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Subscribers to Chart of the Week received this commentary on Sunday, March 26.

The first quarter of 2023 wraps up next week, sneaking up on investors in typical blink-and-you-missed-it fashion. At junctures like these, to avoid bad habits from festering too long within an investing calendar, it’s always helpful to check on what’s worked, what hasn’t, and what’s ahead. By no means is this a comprehensive analysis of every pertinent thing that went down on Wall Street in the last three months. Instead, consider this a quick temperature check of the stock market ecosystem.

It feels like a distant memory at this point, but the Dow Jones Industrial Average (DIJA), S&P 500 Index (SPX), and Nasdaq Composite (IXIC) were sporting double-digit gains as the calendar turned to February. As of Friday though, the Dow and S&P 500 have sunk into negative territory on the year and have only five more trading days to secure a quarterly win. The Nasdaq has held on, up 13% year-to-date, as the tech sector broadly rebounds from a disastrous 2022. Per the table below, Big Tech stocks are all confidently higher year-to-date. Meta Platforms (META) deserves its flowers for a sector-pacing 70.80% year-to-date gain, albeit begrudgingly because it came at the behest of massive employee layoffs.

Big Tech Check In


In terms of volatility, Wall Street’s “fear gauge,” the Cboe Volatility Index (VIX), spent the first two months of the year churning under 20 in a Zen-like state, only to break out in March as the banking crisis took center stage. What the new volatility climate will be in the next two quarters – as the Fed winds down its hawkish interest rate policy and bank stocks churn – will be a situation to monitor.

Bitcoin (BTC), everyone’s favorite drama queen, is up 67.6% in 2023 at last check, while the best-performing exchange-traded funds (ETFs) of 2023 so far are all Bitcoin or cryptocurrency adjacent. The ETF laggards, to nobody’s surprise, are in the bank and financial sectors, with the Financial Select Sector SPDR Fund (XLF) off by 10% in 2023 and 13.5% in March alone. Services, capital goods, and tech are standout sectors so far, while energy, conglomerates, and the aforementioned financial sectors lag behind. One interesting nugget: the ProShares UltraShort Bloomberg Natural Gas – with an apt ticker of KOLD—is up 139% year-to-date, as short sellers bet against ProShares Ultra Bloomberg Natural Gas (BOIL), which is off by 76% in 2023.

Schaeffer’s Senior Quantitative Analyst Rocky White compiled a list of the best-performing ETFs for the second quarter, going back 10 years. Notable standouts include Global X Social Media ETF’s (SOCL) 7.5% gain – which bodes well for META – and VanEck Vectors Oil Services ETF’s (OIH) 20.5% average pop in the last decade. OIH is down 15% in 2023 so far. Continued outperformance from semiconductors in the second quarter could mean a big year ahead of the beleaguered sector, while XLF will surely embrace a 2% return in the second quarter of 2023 given what it’s just gone through.

Best ETFs Q2


Below is Schaeffer’s 2023 Stock Pick performance, roughly one quarter in. Note the outstanding gains from semiconductor equipment specialists Aehr Test Systems (AEHR) and ASML Holding (ASML), the former of which still has 17.6% of the stock’s total available float sold short. Retailer Macy’s (M) is asleep at the wheel but is one post-earnings bull gap away from relevance. Waste Management (WM) and AbbVie (ABBV) aren’t killing any portfolios, while MongoDB’s (MDB) consolidation has chart support in place. With half of that list comprised of software or chip stocks, continued outperformance from the tech sector will bode well for the final three-quarters of the year.

2023 Stock Pick Update


White also compiled a list of the best-performing stocks on the SPX in the last 10 years. One pattern stood out; airliners tend to stay grounded in the second quarter. Why that’s the case is puzzling, because logically, wouldn’t airline travel pick up when the weather gets warmer? Regardless, considering the 6.8% and 8.6% year-to-date returns of American Airlines (AAL) and United Airlines (UAL) stocks, potentially seasonal headwinds for airliners could be an intriguing storyline to watch in the next few months.

Worst Stocks Second Quarter



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