Internally inconsistent market action has been a theme recently. Today the mixed action was even more extreme. The most glaring inconsistency was a gain in the Nasdaq of around 1% while small caps and value stocks were solidly negative. There were around 3,100 stocks up on the day and 4,350 down, but the number of stocks hitting new 12-month highs doubled from last week.
For traders, there were some exceptional pockets of momentum. The biotechnology sector -- as represented in the iShares Nasdaq Biotechnology fund (IBB) -- hit a new all-time high and there was some tremendous move in the group. Zynex (ZYXI) , which is my Stock of the Week, closed the day up $3.21 or 17.3%. There is a long list of other big movers, but under the surface groups such as banks -- the Financial Select Sector SPDR fund (XLF) -- and big-cap value -- in the iShares Russel 1000 Value fund (IWD) -- performed very poorly.
The easy explanation for this action is that the winners of the post-pandemic world are being discovered and aggressively bought. While that is true to some degree, the valuations and the supporting narratives are becoming very stretched. These stocks are benefiting from a flood of liquidity that goes to where it is treated best, and right now those are primarily biotechnology and technology stocks rather than value plays.
It is particularly easy to overthink what is going on in this market. There are some very logical arguments for why it can't last, but they have been out there for weeks and still don't seem to matter. All we can do is try to stay in tune with the price action as best we can and that means focusing on biotechnology and technology stocks that have strong momentum.
Have a good evening. I'll see you tomorrow.
