Split in the Market Widens as Bank Earnings Hit
The split between the two tiers of the market widened again on Tuesday, and the bank earnings did nothing to fix it.
New 12-month lows ballooned to more than 500, and breadth was around 43% positive. Biotechnology was hit hard again, with the SPDR S&P Biotech ETF ($XBI) down 2.6%, while the Roundhill Magnificent Seven ETF ($MAGS) gained about 0.6% to another all-time high.
The SPDR S&P 500 ETF Trust ($SPY) finished around flat, and the iShares Russell 2000 ETF ($IWM) ended the day right around its 200-day simple moving average. According to Finviz, more than 60% of stocks are now below their 200-day moving average, which is generally considered bear market territory.
Downside Momentum Is Accelerating
Most notably, pockets of downside momentum accelerated especially in the hard-hit biotechs. The AI suppliers were weak, but the hyperscalers are holding up the indices.
Before we can do much, we need some indication that this gap in performance is starting to close. The problem is that the big-cap leaders have taken on safe-haven status, and the more everything else suffers, the stronger they stay. Money that is fleeing the rest of the market has to go somewhere, and right now the megacaps are where it feels safest.
Irony of CPI
We get the September consumer price index on Wednesday morning, and there is an irony to it. A hot report would push interest rates higher and hurt the secondary stocks that are already struggling. But it would probably help the mega caps, because it would reinforce their status as the safe place to hide. In other words, a bad inflation number could widen the gap even further.
A cooler number is what the rest of the market needs. It would ease the pressure from rates and give money a reason to look beyond the AI leaders. After Tuesday, though, I’m not convinced lower rates alone will be enough.
Game Plan
It is getting old, but the game plan is the same. I’m staying patient while the charts develop and waiting for some signs that the extreme disparity in performance is narrowing.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
