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    Home»Stock Market»The stock market has only done this 3 times since the Gulf War. It’s not a good sign
    Stock Market

    The stock market has only done this 3 times since the Gulf War. It’s not a good sign

    May 11, 20265 Mins Read


    The poor breadth in the stock market is starting to worry investors. The S & P 500 rose to all-time highs on Monday, climbing above 7,400 as artificial intelligence continued to push the broader index farther above its March low; stocks are up more than 17% since falling to 6,316.91 on March 30. Memory stocks, especially, have been on a tear, with shares of Micron Technology more than doubling, up roughly 140%, over the same span. Take a look at the action beneath the surface, however, and the lack of participation outside of technology is concerning technical analysts. Friday, for example, was the first time over the last 30 years that the S & P 500 closed more than 7% above its 50-day moving average and not even 55% of its components were above their 50-day average, according to BTIG. The 50-DMA tracks near-term trends in a stock price. Usually, the percentage of companies in the S & P 500 that are above their 50-DMAs when the index is more than 7% above its own 50-DMA, has been 86%, on average, BTIG said. On Friday, the S & P 500 was higher by 7.7% on a headline basis, but just 52% of its members topped the same measure. More lows than highs Even more worrying, Friday was only the third time since 1990 that the S & P 500 made a new high when there were more new lows than highs, BTIG found. The two other times both came in December 1999, three months before the dot-com bubble peaked the following March. “Even if the tech/AI price action is justified, there is a difference between tech leading when most stocks are going up, and semis going parabolic when most non-tech stocks are moving sideways or lower,” Jonathan Krinsky, chief market technician at BTIG, wrote on Sunday. “Perhaps the market is simply taking its time before we see the long-awaited broadening, but if we keep seeing 52-week lows expand, it’s more likely we see tech ‘catch-down’ as opposed to the average stock ‘catch-up,'” Krinsky added. Krinsky isn’t the only one noting the market erosion. Jason Goepfert, who edits Capital Context at NextGen News, wrote on social media that it’s only the fourth time the S & P 500 has hit a record high while 5% of its members fell to fresh 52-week lows. The other occasions were similarly ominous. July 1929, preceding the stock market crash of 1929 January 1973, before a 22-month bear market December 1999, preceding the dotcom crash AI and everything else Poor market breadth is concerning to investors because it speaks to underlying weakness when just a few highflying stocks are carrying the market, adding to the risk of a sharp downturn if those leaders fail. The current stock market is held aloft by tech. The Magnificent Seven stocks account for more than one-third of the market-cap weighted S & P 500. Together, those seven are up more than 25% since the March low, as measured by the Roundhill Magnificent Seven ETF . Some stocks have gone parabolic, especially makers of memory chips that have exploded as demand for high bandwidth memory outpaces supply. South Korean stocks, considered a proxy for AI as SK Hynix and Samsung make up nearly 50% of the iShares MSCI South Korea ETF (EWY) , are also up more than 60% since the March low. The Roundhill Memory ETF (DRAM) , launched just a little over a month ago, has roughly doubled since then. DRAM already has $6 billion in assets under management, according to FactSet data. But the poor performance in just about everything else that’s unconnected to the AI story speaks to weakness in the real economy. Krinsky said five of 11 sectors trade below their 200-day moving averages on an equal-weight basis, including financials. Main Street consumers are showing fresh signs of struggle, the technical analyst noted, with the equal-weight consumer discretionary index falling to fresh lows compared to the equal-weight S & P 500. Restaurants and homebuilders are also softening, he said. To be sure, the stock market could continue to climb a wall of worry and rise to new heights, if the largest companies continue to navigate any pitfalls in the current macroeconomic setup and keep expanding their businesses. “In the end, we do think investors are too complacent about the impact higher oil will have on pockets of the market, but we don’t necessarily think this is bad for the overall S & P 500,” wrote Adam Parker, CEO of Trivariate Research and former chief U.S. equity strategist at Morgan Stanley. “Our view is that while the median stock might have margin contraction and therefore multiple contraction, most of the largest companies won’t be impacted.” In other words, the S & P 500 could once again trounce individual stocks this year thanks to its concentration in technology. But the overall weakness bears watching.



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