It was a roller-coaster week of action for the market -- and after it was over stocks are back to where they were over a week ago. However, while the indices and big caps were hitting new highs, underlying breadth was poor, and a large portion of the market is struggling with corrective action.
This disconnect between big-caps, growth names, and small-caps was hitting an extreme a week ago, and it triggered a sharp selloff on Monday. That selloff resulted in good relative strength in the Russell 2000 and helped to close some of the performance gaps that had been building.
The outperformance in lagging stocks continued on Tuesday and Wednesday, but it started to reverse on Thursday and then on Friday we were back to the narrow big-cap leadership, new highs in the indices, and relatively poor breadth.
It is a great market if you are in the right stocks, but there is some absolutely miserable action if you are in certain sectors such as biotechnology and cannabis.
Earnings season started in earnest this week, and that is part of the catalyst that helped to drive the outperformance in the big caps. There were some strong positive responses to reports from the likes of Chipotle Mexican Grill (CMG) , Twitter (TWTR) , and others. New 12-month highs expanded nicely to around 500 with a number of names that reported earning on the list.
Next Tuesday, several of the FATMAAN names will report, and it will be interesting to see how they deal with expectations that have been rising quickly.
Macro concerns like inflation, slowing growth, widespread labor and supply shortages and the Delta variant of COVID are flaring up, but the market is dealing with those problems quite well.
What is most significant about this market right now is how the indices are hitting new all-time highs while about 60% of all stocks are struggling with corrective action or outright bear markets. It is feast or famine, and it's mostly big caps that are feasting right now.
Have a great weekend. I'll see you on Monday.