Unexpectedly Intriguing!
August 24, 2020

The S&P 500 (Index: SPX) closed at a new record high of 3,397.16 on Friday, 21 August 2020, the second time it set a new record during the week that was.

Which puts it in the lower half of the redzone forecast range in the alternative future chart, with the index' trajectory holding it just under the 3,400 level.

Alternative Futures - S&P 500 - 2020Q3 - Standard Model (m=-0.5 from 14 July 2020) - Snapshot on 21 Aug 2020

Despite setting new record highs, the rally the Fed has wrought has been remarkable for its lack of breadth, with just a single handful of stocks carrying the index to its new high. Or as Lance Roberts puts it, "the market has 'bad breadth'":

One of our primary concerns relating to the current elevation in the market has been extremely narrow participation. As Bob Farrell once quipped:

“Markets are strongest when broad, and weakest when narrow.” 

There is little doubt that markets reek of “bad breadth.”  As shown below, the market has achieved new highs with only a small percentage of the S&P 500 index participating.

tending the portfolio garden 08-21-20, Tending The Portfolio “Garden” As Winter Approaches 08-21-20

This “narrowness” is a result of the “passive indexing” effect on the markets which I explained in “Bulls Chant Into A Megaphone:”

“Currently, the top-5 S&P stocks by market capitalization (AAPL, AMZN, GOOG, FB, and MSFT) make up the same amount of the S&P 500 as the bottom 394 stocks. Those same five also comprise 26% of the index alone.” 

“What investors are missing is that the top-5 stocks are distorting the movements in the overall index.

For each $1 put into each of those top-5 stocks, the impact on the index is the same as putting $1 into each of the bottom 394 stocks. Such is clearly not a true representation of either the market or the economy.” 

If you really want to find the darkness lurking within the silver lining, you need to turn to ZeroHedge's take, which ends with the following cheery observation about the ratio of advancing/declining (A/D) stocks in the market:

... the last time we had a cluster of such negative A/D days with the S&P closing at all time highs was just days before the dot-com bubble burst.

But which you really need to click through to appreciate in all its gloomy glory. As for other gloom in the news, the week's headlines were somewhat short of imminent doom.

Monday, 17 August 2020
Tuesday, 18 August 2020
Wednesday, 19 August 2020
Thursday, 20 August 2020
Friday, 21 August 2020

But wait, that's not all! Don't miss Barry Ritholtz' latest list of positives and negatives he found in the week's economics and markets news!



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