Hi friends,
This will be a short one as there were virtually no changes to the market.
Mega-caps such as NVDA, MSFT, AAPL etc (the Magnificent 7) keep leading the market while companies more representative of the US economy (specifically small-caps represented by the Russel 2000) keep lingering and chopping sideways in the same manner they’ve been showing for a while. Microcaps (e.g. IWC) have technically not even lifted out of the 2022 bear market, while the SPX keeps hammering into new Highs every week.
Again, it’s very important to appreciate the difference between the cap-weighted SP500 (SPX) versus its equal-weight brother (RSP) – while the SPX is up 15.3% YTD, the RSP has only rallied 4%. The numbers are even more stark when comparing the Nasdaq-100 to its equal-weighted version (19% vs 6%). This market is almost exclusively about a handful of mega-cap tech companies which internal inefficiences will be weeded out using the new generative AI models, and a couple of the large-cap sister stocks (e.g. ANET, PSTG, …).
Thin markets are weak markets – the US, UK, Eurozone, Japan all follow this same template. While the US and Japan definitively have broader advanced than European equities, this is only a relative comparison.
Trading leading small- & midcap stocks moving out of constructive digestions does not work at the moment, as it has not for the last couple of years. In my eyes, the only way to profit off this market is building long/short portfolios with options leverage. The everything rally is still in the cards, but we need confirmation from the broader market versus the few stale tech names that all mutual funds are FOMO’ing in into recently.
So long,
TGS