Big-cap artificial intelligence names rested on Wednesday, but money continued to flow into other big-cap names such as Netflix (NFLX) and Apple (AAPL) . Breadth was around five to three negative, and, most notably, fewer than 50 names hit new 12-month highs while around 320 were making new 12-month lows. The Russell 2000 ETF (IWM) was the laggard, with a loss of 1.1%.
The story of the market for May has been narrow big cap leadership. This graphic makes it very clear what was going on. If you weren't in the dozen or so bright green names that gained 10% or more, then you had a tough time producing positive performance.
As we move into June, the big question is how long will this lopsided action continue. Ironically, the names benefiting from the AI theme are also viewed as somewhat recession-proof and a place to park money if the economy slows. Apple is one of the prime beneficiaries of this action.
Bonds were strong following weak economic news out of China and a very poor Chicago PMI report. The odds of a June rate hike also dropped sharply to under 30%. Another illustration of the growing concern about the economy is weak action in oil and commodities.
The two-tiered action is some of the most extreme that has ever occurred. We have no way to gauge how much longer it can persist, but we have no indications that the market will broaden. If anything, market players are becoming even more selective and narrow.
One area I will be watching in June is the changes to the Russell indexes. This always leads to the largest volume of the day of the year at the end of the month. It can be very tough to gain, but there will be some unusual flows that are reflected in the charts. I'll have more on this as it develops.
Have a good evening. I'll see you tomorrow.
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