Is there a nascent rotation occurring? Everything but growth [aka NASDAQ 100] has outperformed the market the last several days. Yesterday the long-term trend returned as mega tech rose..aka NVDA up about 8% sending the NASDAQ up 1.2% and the rest of the market was flat.
It is widely accepted that the markets are grossly imbalanced, the concentration of funds in a handful of companies is unprecedented.
The S& P 500 is 31% comprised of technology and Communications Services is another 9% to 10%, it is not likely that this segment can correct and have the index not drop.
But as we saw in one of the most famous bear markets of all time (March 2000-Ocotber 2002), value and growth, the Dow and the NASDAQ, certain sectors, etc. can all behave very differently from one another.
The NASDAQ collapsed over 78% while the Dow declined about 10%. It took about 15 years for the NASDAQ to retrace the decline.
Today it is evident that those who own the most over owned [and overvalued] shares, including index investors [given the massive weightings that five companies have of the indices] have the most exposure.
As noted many times, indexing has become the strategy not a strategy where price discovery is not a factor. By definition, with a constant influx of funds, more funds are allocated to the largest companies versus the smaller companies, creating a massive vacuum.
What happens when the trend reverses itself? Will a massive blackhole occur? Will the largest companies get decimated by the same degree if not more that occurred from 2000-2002 and everything else outperform…aka the trading activity of the last several days?
It is often written the most obvious conclusions are those that ignored. The most neglected sense is common sense.
What will happen today?
Last night the foreign markets were up. London was up 0.08%, Paris down 0.52% and Frankfurt up 0.16%. China was up 0.76%, Japan up 1.26% and Hang Seng up 0.09%.
Futures are flat. NVDA is up another 2%, a follow through form yesterday’s advance. The 10-year is off 7/32 to yield 4.28%.
