Small Caps Hit Historic S&P 500 Milestone But There's a Stock Market Problem
Rotation has become a defining theme for the market but some sloppy action is lurking under the surface.
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The Russell 2000 hit another all-time high on Thursday, rising 0.9%. The S&P 500 managed a modest gain of 0.2% but was unable to make a new high. What makes this relative performance notable is that it marks the tenth consecutive session in which small caps have outperformed the S&P 500. That is a historic milestone that has not occurred since at least 1990, more than 35 years ago.
Rotation Is the Defining Theme
History-making streaks like this rarely persist for long. What stands out most about the current market is the degree of rotation occurring beneath the surface. On Thursday, small-cap strength was driven primarily by the banking sector.
At the same time, semiconductors — which are certainly not small caps — jumped 2.75% to a new high. NVIDIA (NVDA) led the charge with a 2.5% gain. The rest of the Magnificent Seven was far less impressive, with the group finishing close to flat.
Sloppy Session Beneath the Headlines
Despite the strong headline numbers, it was a sloppy session. There were pockets of weakness alongside areas of strength. The Dow Jones Industrial Average benefited disproportionately from Goldman Sachs (GS) , the most heavily weighted stock in the 30-stock index.
This type of action makes the market increasingly difficult to navigate. Some stocks are becoming extended, while money flows are reversing on a daily basis.
Patience Is Required
I am seeing some interesting chart developments ahead of upcoming earnings reports over the next few weeks. I am selectively buying pullbacks in favored names, but I am doing so incrementally and with patience.
There are a few stocks I would like to build into more substantially, but timing is critical. In this environment, patience is not optional, it is a requirement.
Have a good evening. I will see you tomorrow.
At the time of publication, DePorre was long NVDA.
