We Keep Hitting New Highs, But Under the Surface It's Ugly and Troubling
The narrowness of market strength has lasted longer than seems reasonable, but who says the market is always reasonable?
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Once again, the S&P 500 and Nasdaq 100 QQQ hit new highs on a late-day recovery and negative breadth. This has been a very common pattern lately and appears to be self-fulfilling at this point.
Money continues to flow into a small number of large-cap technology names that drive the indexes. Although these stocks are technically extended and expensive, they continue to attract inflows because the relative strength creates the illusion of safety.
Under the surface, it was another ugly day for much of the market. Breadth was nearly two-to-one negative for much of Thursday, and over 230 names were at new 12-month lows. The Russell 2000 small-cap index lost 0.9%, and the DJIA continued its recent poor performance with a decline of 0.2%.
Weekly unemployment claims were higher than expected on Thursday morning, and PPI was softer than expected, which boosted bonds and provided optimism about interest-rate cuts, but unemployment claims also signal that the economy may be cooling off rather quickly right now.
This streak of late-day bounces and very narrow strength has lasted longer than seems reasonable, but the market doesn’t need good reasons to do what it does. Sometimes, it will do things simply because so many people think that is unlikely.
I find this market action troubling, but most of the media only sees new highs in the indexes, and that is all that matters.
Have a good evening. I’ll see you Friday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
