Apple Turns Junk Stock as Big-Cap Chaos Masks Ongoing Rotation

Over the last two years, I have often written about how the positive action in the Magnificent Seven and big-cap names covered up very poor action under the surface in smaller stocks. On Tuesday, we had the reverse of this scenario. The senior indices were pounded and the Magnificent Seven led the way with a loss of 3%. Apple  (AAPL)  traded like a speculative junk stock that no one wanted any longer.

Small Caps Stand Their Ground

This poor index action covered up some pretty good action in smaller stocks. The Russell 2000 outperformed the S&P 500 for the 13th straight trading session, finishing with a loss of 1.2% compared to the 2% drop in the larger index. In addition to the small-cap outperformance, there was a long list of small stocks jumping by more than 10% and 220 names hit new 12-month highs. The Innovator IBD 50 Fund ETF, which holds the hottest growth stocks, was actually up 1.56%.

Media Blind Spots and Market Reality

The financial media is mostly blind to these hot pockets of action because these are not the well-known names that they talk about all day, every day. It was the worst day for the senior indices in three months, but it was not a total disaster. About 27% of stocks finished in the green. In past corrections of this magnitude, only about 10% would be up.

The positive spin on this is that rotational action is still very strong. However, it looks and feels very negative because the stocks that are dropping the most are highly visible. If the tables were turned and small caps underperformed by a similar magnitude, we would not even hear about it on financial television.

Rates and Resilience in the Face of Uncertainty

It was somewhat surprising that there was no dip buying at all in the senior indices, and they closed at the lows of the day. The blame for the action was attributed primarily to tariffs and efforts to take control of Greenland. That is likely to be resolved this week, but the more important issue was the spike in interest rates and the collapse in bonds. That is creating some major uncertainty, and it is the primary reason the selling in big caps was so intense.

Opportunities Ahead of Earnings

We have earnings reports coming up, and action like this will lower expectations. I am contemplating some buys in the Magnificent Seven group in front of these reports. It is very likely these reports will be upbeat, and we have already removed the danger of a "sell the good news" response.

Have a good evening. I will see you tomorrow.

At the time of publication, DePorre had no positions in any securities mentioned.