Stock Market Is Shifting as S&P 500 Endures Surprising Weakness
I’m doing a little bargain shopping and plan to do more as charts develop.
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The market is facing heavy pressure this Tuesday morning, with only 23% of stocks in positive territory. For the first time in a significant period, we are seeing more new 12-month lows than highs. While stocks are down across the board, the internal dynamics are shifting in a notable way.
Small Caps Show Relative Resilience
Despite the broad weakness, the Russell 2000 (IWM) is actually outperforming the S&P 500 (SPY) , with a loss of 1.3% compared to the SPY’s 1.5%. This is the 13th straight day os superior small-cap action. Typically, small caps suffer disproportionately when the market softens. This relative strength suggests that underlying interest in speculative names remains surprisingly intact.
Conversely, the "Magnificent Seven" (MAGS) have resumed their role as laggards, dropping 2%. For the past two years, these mega-caps served as a "safe haven" during turbulence, but that reputation has eroded recently as they lose their relative strength advantage.
Tariffs and the Bond Market Surprise
The primary weight on investor sentiment on Tuesday is the realization that the Trump administration is using tariffs as a foreign policy "club" rather than just a tool for economic fairness. While this is a "bridge too far" for many, Trump’s established pattern is to shift policy and proclaim victory rather than admit error. There is some lingering optimism that issues like the Greenland situation will be resolved without lasting damage.
However, the more concerning development is the sudden spike in interest rates and weak bonds. This unexpected shift puts intense pressure on the Federal Reserve heading into the policy meeting at the end of the month. While a rate cut remains extremely unlikely, chair Jerome Powell will be forced to address this volatility, which is certain to evoke a sharp market response.
Finding Value in Randomness
I am not overly concerned about the current price action. This appears to be "top-down" selling, where index and ETF liquidations are driving broad weakness. As I’ve noted in my trading insights, intraday volatility is often driven by this type of randomness, making short-term technical patterns difficult to trust.
The silver lining? Many stocks totally insulated from these macro issues are being dragged down simply because they are components of an underperforming index. This creates a prime environment for stock pickers who focus on fundamentals and valuation. The biotechnology sector, in particular, has several names down for no fundamental reason, offering a potential opportunity to catch a positive reaction ahead of upcoming earnings reports.
Current Portfolio Moves
I am keeping my activity light on Tuesday given the noise, but I have added to existing positions in Xeris (XERS) , NeoVolata (NEOV) and Emergent Biosolutions (EBS) . I plan to do more "shopping" on Tuesday afternoon as the intraday swings settle.
Keep in mind that we face the risk of a Supreme Court ruling on tariffs on Wednesday. If issued, it is guaranteed to create significant moves.
At the time of publication, DePorre was long XERS, EBS and NEOV.
