Here's What's Driving This Spirited Rally

 | Aug 22, 2017 | 1:41 PM EDT
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amzn

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One thing the business media are missing in the coverage of today's energetic rally is that it is primarily index driven rather than stock driven. This move is not a product of investors rushing to buy individual stocks that have sold off recently. It is primarily big funds and computer programs buying futures, index ETFs and various derivatives of the indices.

The easiest way to spot an index-driven market is when the leaders are primarily the big-cap names that are the major components of the indices. Apple (AAPL) , for example, is the "Big Kahuna" of the indices and is outperforming with a gain of 1.6%. Other large-caps such as Alibaba (BABA) , Amazon (AMZN) and Alphabet (GOOGL) are also doing better than the averages.

If you are a market timer or an indexer a gain is a gain. There is no reason to complain about the way the market is functioning, but if you are a stock-picker this can be very difficult action to navigate. While breadth is very good there aren't many unusual pockets of momentum. What we have are a lot of stocks with minor gains that aren't offering any notable entry points.

Index-driven moves are one of the big reasons that actively traded funds have tended to lag. They are chronically underinvested and have a very hard time keeping pace with action like this. So they pile into these names, which forces the indices up more and makes the problem even worse.

I'm a stock picker and while my stocks are acting OK, I am underinvested and lagging the indices. That is the nature of the beast and simply recognizing that is what is occurring can help you tolerate it better.

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