Market review 24.06.16
Increased bifurcation and volatility in the late cycle
Hello everyone,
The Nasdaq-100 made new highs on Friday, and the VIX is near multi-year lows. On the surface, this sounds fantastic for equity bulls of all stripes.
However, of all the 1,900 US stocks with a market cap over $2B, only 16 touched new highs on Friday. This includes five AI-related stocks: NVDA, AVGO, ARM, PSTG, and NVMI. Meanwhile, 66 stocks printed fresh new 52-week lows. Most areas outside of US large-cap tech have underperformed significantly in recent weeks.
It’s not just the bifurcation. We’re seeing rotations occurring at great speed. Leadership in big segments like China, Financials, and Industrials come and go. Niche segments such as copper, cannabis, fintech, and crypto rose dramatically in a few months, followed by a sharp decline in a matter of weeks. Individual large-cap stocks routinely rise or fall more than 10% on earnings reactions. Failed breakouts are common.
How is the VIX so low despite all this? Unlike the low-VIX environment of 2017 where everything quietly grinded higher, internal bifurcation is cancelling out volatility at the index level (you can read this article to learn more). Being short volatility has been one of the most profitable trades this cycle despite rates at 15-year highs and IWM flat over the past 3+ years. SVIX is up 5-fold since the Oct ‘22 lows, more than SMH and BTC!
The fragmented nature of this market is consistent with late-stage behavior. But despite the challenges, I remain very bullish over the summer months.
In today’s blog post, I’ll first review the Intermarket to remind us of the big picture. I’ll then show the dominance of US large-cap growth in charts. Finally, we’ll look at a couple of other standout areas.
The Intermarket
The message in these blog posts has been that global stocks remain in an uptrend, oil is in a downtrend, and rates are easing.
VT Weekly. Global stocks made a major bottom in Oct ‘22 and a secondary bottom one year later. Rare breadth thrust signals followed both instances. VT went on to make a significant breakout in January and currently remains above the March highs.
