It might be too early to draw any valid conclusions, yet it sure appears that the lopsidedness of this market advance is finally chafing at its undercarriage like a good mix of salt and wet sand in the swimsuit on the beach.
The current and highly-selective market advance starting in 2023 had to face a couple of roadblocks, which it however overcame without any major hiccups – just to name the big ones off the top of my head: the 2023 bank collapse (stifled as always by the Fed), the daunting July-November correction in the same year, or the Yen carry trade unraveling in August of this current year.
Albeit, as the leaders go, so tends to go the market.
While the extreme concentration and lack of low-risk opportunities was something to be lamented since the start of the rally, real cracks in the vast majority of the leading stocks could not truly be observed until quite recently (see here or here).
Add to this that the glamour stock, the ‘Magnificent 7’ led by NVDA, AVGO and MSFT, are not faring well anymore – with the negative earnings reaction to NVDA’s most recent report serving as yet another catalyzer for renewed bouts of cross-market selling.
Even the recently re-emerged TSLA has severely sold off for weeks. Only META, NFLX, AAPL and AMZN, less-hyped AI blue-chips, have been able to hold more ground (as of yet):
Furthermore, take a look below at a non-exhaustive collection of up-until-recently leaders that have cracked on large volume and volatility and are now starting to peg new Lows, many of them on the verge or already in the process of starting a new downtrend. Keep in mind that these are log-scaled charts, with many stocks being down 50% or more:
It appears that, so far, the Trump Rally will not be going far.
Currently, among the strongest market segments are insurances and staples (e.g. look at below chart of the US Tobacco Index), signaling classic safe-haven rotation.
My US screener, which had up until a few weeks ago returned >700 stocks, now spews out just a tad more than 200, with >70 of them being insurances and other financials.
While the current development might bring about a much-needed washout of this exuberant and over-concentrated market advance, we have to be careful with making definitive statements. Remember that there was a major pullback in late 2023 that reversed on massive power into an AI index melt-up, while even then we were also able witness blowing-off leaders (e.g. OPRA, SYM, or the gigantic SMCI). Some tops are long and drawn-out … in fact, most are.
In any case, whether this is the beginning of the end of the rally, or the end of the beginning, for the immediate future, low-risk long trading is off the table in US equities.
So long,
TGS
