Even though the S&P 500 is down about 4% from recent all-time high levels, it is not reflecting what is going on in this market. I've been discussing this disconnect for months, but it has only gotten worse. There are dozens of stats that show how far many stocks have fallen, but it is not reflected in the indexes that have been held aloft by Apple (AAPL) and a few other big-cap names such as Pfizer (PFE) .
In the last four years, there have been two major market corrections. One was the Covid correction that hit in February 2020. That was obviously news-driven and was quite unique in the history of the market.
The other major correction was in late 2018. That was triggered, in part, by the unwinding of the "short volatility" trade. It was driven partially by structural matters, but also by technical conditions. That correction is similar in many ways to what is happening now but with one major difference -- it is not reflected in the indexes.
In the fourth quarter of 2018, the S&P 500 fell 20% from recent highs. It bottomed on Dec. 24, 2018, when the Fed rode to the rescue. At that point, about 380 stocks in the S&P 500, or 76%, were down 25% or more in the prior 25 days.
That sounds like a pretty severe correction, but it is not nearly as severe as the current market. In the last 30 days, around 95% of stocks are down 25% or more, but the S&P 500 is down only 4%.
That is a stunning statistic and what is most amazing about it is that the business media doesn't even seem to be aware of how severe most stocks have sold off.
One of the main reasons the indexes have been so misleading is that just a couple of big names have held up. Apple is the largest market cap stock in the market and has more influence than any other single name. Wednesday it was flying to new all-time highs on what looked like manipulation. Thursday morning it is being hit on news that sales are slowing.
What has prevented many stocks from finding a bottom is that the indexes have failed to correct. Market players aren't comfortable buying badly battered stocks if the indexes are going to fall sharply. It doesn't matter how oversold something might be.
This is unlike any market environment I have navigated previously, and it is not clear to me how this huge disparity will resolve itself. There are many stocks that have dropped substantially that I would like to buy, but can they gain traction if the indexes struggle?
We have another early bounce Thursday morning, but the problem lately has been poor closes. We need some late strength to turn the market tide.