Investors Are Nervous, But They Aren’t Leaving
New lows have more than doubled since Wednesday’s follow-through day, and the stocks making new highs are defensive names and Apple.
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After a quick drop right after the open on Friday, the indexes found some support and managed a limited recovery late in the day. Breadth improved to about 45% positive from 25% on Thursday, but there were only 75 new highs against 430 new lows. On Wednesday, when the indexes produced a follow-through day, there were 126 new highs and 180 new lows. The new-low list has more than doubled in two days.
Nvidia (NVDA) rolled over after gapping higher, and the entire chip sector was weak. This time the Invesco QQQ Trust (QQQ) lagged with a loss of 1.2%, while the iShares Russell 2000 ETF (IWM) did better with a loss of 0.3%.
Bonds Ignore Some Good News
Bonds sold off again, even though the producer price index came in slightly below expectations. Wholesale prices are still rising at the fastest pace in four years, and Fed officials kept up the hawkish talk. New York Fed President John Williams said inflation is “far too high,” and Boston Fed President Susan Collins said more tightening is appropriate soon.
When bonds can’t rally on a softer inflation number, it tells you the bond market is focused on the Fed rather than the data. Nearly every Fed official who has spoken this week has leaned hawkish, and the December meeting is less than four weeks off.
The other issue is the continued uncertainty about the fallout from Nvidia. Jensen Huang is gone, but nobody knows yet who will run the company or how the companies that depended on its financing will adjust. Nvidia reports on Tuesday, and the Anthropic IPO follows later in the week.
Move Toward Safety
Apple (AAPL) hit a new all-time high. That is a big turnaround for a stock that was sold hard less than two weeks ago when it warned about memory costs. It doesn’t have an AI spending problem, and investors are treating it as a place to hide.
Many of the larger stocks on the new-high list were defensive names such as Johnson & Johnson (JNJ), Costco Wholesale (COST), Coca-Cola (KO), Procter & Gamble (PG), Republic Services (RSG) and Teva Pharmaceutical (TEVA). Those aren’t growth stocks, and they illustrate a move toward safety.
It is a change from earlier this year, when the mega-cap AI names were where money went to hide. Now the safe haven is health care, consumer staples and trash haulers.
The CapForce IBD 50 ETF (FFTY), which holds mainly growth names, is languishing at its recent lows after a decline of about 34%. Growth stocks are already in a bear market, even though the indexes don’t show it.
Money is hiding in defensive stocks and Apple instead of leaving the market. When conditions improve, that money will leave the safe names and go looking for growth again. The stocks that have built support by then will be the ones that attract it.
Game Plan
My view of the action is unchanged. This poor action may help create the conditions for some new leadership as positive seasonality starts to kick in, but it is premature to anticipate that. We need to be patient while stocks find support and prove that they can hold.
Have a great weekend. I’ll see you on Monday.
At the time of publication, DePorre was long NVDA.
