After displaying peak health coming into and through the month of August, stocks started to look a little peaked through the first several weeks of September. The market’s health was in question again when stocks resumed trading last Monday. Following three consecutive weekly losses, last week began with the major averages plunging below their lows of the prior week in the first minutes of trading.
The sweet emotion of the stock indices dancing steadily higher for the past couple months was suddenly squelched last Thursday. The mega-cap tech stocks, which had helped pump up the major averages for months, suddenly deflated. When it became evident that those leaders had, at least temporarily, lost their mojo, it triggered a rush for the exits in those names and weighed on the market in general.
Another week of gains in the broad averages left me grasping for some suitable imagery that could present an accurate visible representation of the market’s current overextended circumstance. While it may be a bit of a stretch, I opted for spandex. Not just any old spandex, but that overstuffed, stretched-to-the-limit spandex appearance like rubber bands on a marshmallow. Another series of fat gains last week further bloated the averages to new record highs,
Those tall colorful plastic cylinders with wild hair and waving arms are apparently called “air dancers.” They’ve been around for years. You’ve seen them weaving and dancing in front of all sorts of businesses: car lots, restaurants, resale shops, funeral homes. Okay, maybe not funeral homes but they are nevertheless unnaturally pervasive. Their telepathic messages shout, “Shop here!” “Look at this!” “You don’t know what you’re missing!” I’m thinking they should put a few of those things out in front of the New York Stock Exchange: “Great deals!” “Don’t miss out!” “Zero percent financing!”
Those air dancers seem to be a good metaphor for recent stock market activity on a couple different levels.
It was a pretty good week for the markets. Just about everything chalked up a gain for the week. Precious metals streaked higher but gave back a bit of their advance on Friday. All eleven U.S. equity sectors were in the plus column for the week. Most international markets, both developed and emerging, extended their recent rallies. Two of the top gainers on the week were sectors that had been at trailing the rest of the field: The Russell 2000 Index of small-cap stocks (RUT) climbed just over 6% and an index of MLP and Infrastructure companies added 6.3%.
Last week the market was like a dance competition where the top prize went to a group in which a half dozen members at the front of the lineup were wowing the crowd while the rest of the troupe was tripping and stumbling behind them. Rallies in a relative handful of the mega-cap tech stocks, before and after their earnings announcements, enabled the NASDAQ Composite Index (COMP) to waltz to a 3.69% gain for the week.
The big story in the markets last week was the continuing rally in precious metals. Gold gained about 5% for the week, and Silver spiked nearly 18%. While media outlets are quick to attribute the rally in precious metals to a flight to safety amid the pandemic, a more accurate description is probably a flight out of paper currency. Following a decade of central bank printing presses running at full speed,
The focus of my article last week was the disparity in performance between the few leading groups and the rest of the market. While the market’s procession higher had slowed considerably in recent weeks, a few groups had continued to parade higher with many lagging sectors bringing up the rear. There also had been a disparity in performance between a relative handful of mega-cap stocks,
The disparity in performance between the few leading groups and the rest of the market widened again last week. While it feels like the averages have been steadily marching higher, it’s been a relatively small group of stocks that have been racking up most of the gains. Most groups have been trading sideways or lower since early-June. Thanks to a big day on Friday,
Just when it looked as though the market could trend endlessly higher with the explicit backing of the Fed, there was suddenly a spike in COVID infections. Just when the potential valuations for social networking and online shopping stocks seemed limitless, there was suddenly concern about the future. It seems more likely that the declines in the market in two of the last three weeks were not a timeout from reality;