Hello friends,
After the August whipsaw, there’s been a recovery of most indices close to the old Highs in Europe and the US. The equal-weighted SP500, in parallel with the NYSE Composite, has taken lead into new Highs over its cap-weighted version, suggesting that the big-tech Magnificent 7 are at least for the moment out of favor while utilities, financials (e.g. REITs), staples and other risk-off groups are attracting money inflows.
Cap-weighted NASDAQ, SP500, as well as averages for mid-/small- & microcaps are struggling to enter new Highs, reinforcing the impression that most of the market is still stuck in the secondary correction that started early July. The European Stoxx 600, Euronext AEX 25 and Japanese Nikkei 225 (also the TOPIX) are mirroring this dynamic. Right now, we are at a decision point – after the 1 month rally off the Lows, can stocks cool off, find support, and keep moving up into the 3rd/4th quarter of the year, or will the chop continue or roll over into a downtrend, catalyzed by a bulk of macro uncertainty hailing down on us?
See here the SP500 equal-weighted (RSP), cap-weighted (SPX), mid-caps (RUT), the Stoxx 600 and the Nikkei 225:
To be quite frank, equities have become lacklustre, many setups are falling apart, and volume has been dry. This is partly due to the ‘dog days’ of summer with fund managers on vacation, however we should see this impediment resolving about now.
The only group worth mentioning right now is biotech and pharma – strong stocks are ZEAL.CO (Zealand Pharma), INSM, RNA and LBPH. German arms manufacturer RHM is also in a constructive principal digestion. Smaller stocks of interest are Swedish XVIVO or Polish ALR, but markets aren’t ripping and there is a reason for that. We might not see a substantial change of character from the existing dry chop until at least the Fed’s rate cuts or even the US election results.
There is really not much more to say – there are periods of time where only few ideas stand out and the overall odds of making good returns are low i.e. right now is not the best time to get large exposure long. A lot of the macro points towards lower prices in the future, and my short ideas are working. But that does not mean things can’t change back to a long-favoring market. We have to stay vigilant and observe what’s happening, and act according to however the enigmatic entity of the market decides to proceed.
So long,
TGS