The tech-heavy Nasdaq Composite notched another new high on Tuesday while the rest of the market just sort of jogs in place near their early March level. This is a consequence of the fact that buyers are focusing in on an increasingly narrow group of large-cap tech stocks to drive the gains, a classic momentum move. And something I’ll talk more about below.
Catalysts were few and far between as investors await the conclusion of the Federal Reserve’s two-day policy meeting on Wednesday and the release of the April non-farm payroll report on Friday. Earnings continue to flow, and overall, are strong.
But “hard” economic data continues to disappoint at the same time: Today, weak auto sales provide further confirmation that the U.S. consumer has snapped their wallet shut despite sky-high measures of sentiment and confidence.
In the end, the Dow Jones Industrial Average gained 0.2%, the S&P 500 gained 0.1%, the Nasdaq gained 0.1% and the Russell 2000 lost 0.6%. Treasury bonds were stronger, the dollar was little changed, gold gained 0.1% and oil extended its recent weakness to decline 2.4%. The rise in T-bonds boosted the ProShares Ultra Treasury Bond (NYSEARCA:UBT) recommended to Edge subscribers to a 1.3% gain.
Volume was heavy, with NYSE activity at 106.8% of the 30-day average on mixed breadth. Industrial and healthcare stocks led the way with gains of 0.5% and 0.3% while consumer staples were the laggards, down 0.6%, on some big breakdown in cereal stocks including General Mills, Inc. (NYSE:GIS) on food deflation pressure.
Coach Inc (NYSE:COH) gained 11.4% after reporting an earnings beat on a 3% rise in North American comp-store sales vs. the 1.6% gain expected. Delta Air Lines, Inc. (NYSE:DAL) rose 5.4% on higher profitability. Recent semiconductor sweetheart Advanced Micro Devices, Inc. (NASDAQ:AMD) suffered a stomach churning 24.4% decline on a first-quarter earnings loss and in-line revenues, as forward guidance disappointed. Management noted higher capital expenditure requirements may limit earnings upside.
There’s been a lot of talk in recent days about the Big Tech momentum — with stocks like Facebook Inc (NASDAQ:FB) and Amazon.com, Inc. (NASDAQ:AMZN) seemingly unstoppable. Yet things are not so great for all the stocks left behind. In fact, an increasing number of stocks are sinking to new 52-week lows.
On Monday, according to SentimenTrader, they accounted for more than 2% of the stocks on the Nasdaq exchange. Which, on a day when the Nasdaq hit a record, is abnormal.
The last time this happened was in July 2015, which marked a medium-term top for stocks ahead of the rise of concerns about energy sector defaults and Chinese currency volatility — both of which pushed the Nasdaq lower with the rest of the market.
Moreover, volatility as measured by the CBOE Volatility Index tested below 10 for the first time since the last bull market was peaking in early 2007. This is full-on euphoria.
While this is no guarantee of broad market weakness on the horizon, the odds are rising of a selloff as breadth continues to narrow and the rest of the market — as represented by the large-cap indices — continue to stall near their early March highs.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.
