While Amazon, Meta, and Microsoft Drop, These Sectors Are Rising
How can the S&P be at 6800 when the mega caps are down? Value stocks have finally come alive.
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Here’s a question I get asked quite often these days: How can the S&P be at 6800 when so many stocks are down so much?
Let me dispel that notion that so many stocks are down so much. Yes, so many software stocks –and yes, growth stocks—are down so much, but much of the rest of the market has been doing just fine.
So, if you are a growth stock investor, it must feel like the world is ending some days. But if you are a value investor, hey, you feel as if you’re in a dream with so many groups up 20% or more in just the last six weeks. Now you know what all those growth stock folks have been feeling these last several years!
By now, you know all the groups that are up 20% more or less, but let’s list some of them. There are the staples, the homebuilders—yes, the homies! —the materials, energy, agriculture, drugs, and utes. And as I have said before, there may be a lot more of those stocks, but their market caps are so small relative to, say, Amazon, that if you sell x number of shares of (AMZN) you have to buy a gazillion more of the smaller capitalized stocks to stay invested. Let me remind you there was a time Exxon had the largest market capitalization.
But let’s talk about Amazon. Do you realize that not only is it down eight or nine straight days (yes, that makes it short-term oversold), it has basically given up an entire year’s worth of gain? It was trading higher 52 weeks ago.
Meta had those great earnings, but it has given that gap up and more. It too is trading where it was a year ago, if not down a little.
Microsoft (MSFT) has also given up a year of gains, having nearly round-tripped itself from the spring lows a year ago.
So the next question is: Did the Generals fall? And if they did, why hasn’t the index followed?
It’s a great question because six months ago, they were the generals and I would have said unequivocally that if they tumbled back near the spring lows, the S&P and surely Nasdaq would have followed.
Maybe they are no longer the generals. I continue to follow this chart of the ratio of the S&P (staid, less high beta) to Nasdaq (more growth, higher beta). When it breaks out like this, it is often a tough time for those growthy names.
For now, that is the trend, but we can often have a counter-trend move within that trend. I would like to see the S&P break 6800, and the VIX get jumpy (still have not seen that). I believe the last few months of watching tech/growth stocks tumble as they have is starting to weigh ever so quietly on sentiment.
Right now, we see it in the put/call ratios rising, but not many other places. I suspect if we break that well-watched level, that sentiment that is getting antsy moves quickly to concerned, especially if all those over-extended non-growth stocks pull back as well.
And if that happens, then the group, I expect to enjoy a short-term oversold rally, would be those beaten-down software names. They probably have the most hate attached to them now.
