On Thursday, the Russell 2000 small-cap index officially fell into a bear market as it dropped more than 20% from its highs and hit a new 12-month low.
The Dow Jones Industrial Average covered up some very ugly action on the surface as small-caps, growth stocks, biotechnology and many other names performed poorly. The Dow was helped by Dow Inc. (DOW) , Chevron (CVX) and Merck (MRK) , while the Nasdaq 100 was hit by weakness in Tesla (TSLA) , Intel (INTC) and other technology and semiconductor companies.
After the close, Apple (AAPL) posted a very robust earnings report and stated that it was able to navigate supply chain issues fairly well, although it did cost the company in the fourth quarter. The comments about supply chain issues easing and some optimism about semiconductor supply addresses one of the big concerns that has been hitting the market lately and causing inflationary pressures.
Apple is not seeing any economic slowing and its guidance was solid. Its stock primarily has been under pressure since the beginning of the year solely due to the hawkish Fed and inflation worries. Its valuation has come down because the discount rate has gone up.
We will see how Apple performs, but the issue is whether the stock has discounted higher rates. That is the issue that the entire market is dealing with, and it is going to be a very tough process.
I have been a broken record on this issue, but the biggest problem for traders continues to be the great disparity in performance in various areas of the market. Some sectors have been in a downtrend for over a year, and according to Sentimentrader.com, 44% of Nasdaq stocks are down 50% or more from their highs. That is in the top 7% of all days since 1999. That is bear market action, but because the Nasdaq isn't down 20% due to some big-caps such as Apple it isn't being recognized as a bear market.
The worry of many market players is that this downtrend is not going to end until the Nasdaq and S&P 500 are down more than 20%, and it is going to be impossible for secondary stocks to rally if the indexes are still trending down.
This is a terrible market right now, and the indexes only make it worse by not fully reflecting how bad it is.
Even a good report from Apple is not enough to help the Dow Industrials, as they already are trading down from their overnight highs.