Another Monday, another record high for the S&P 500 (SPX) index. The benchmark jumped to 4,528, a gain of 0.4%, says Jon Markman, editor of Pivotal Point.
There is some concern among the bearish that breadth has been thin. This is the idea that too few stocks are participating in the advance. That message was highlighted in a note from Tony Dwyer, an excellent strategist from Canaccord. He notes that the five biggest tech stocks accounted for 48% of the gains for the benchmark S&P 500 since May 31.
The takeaway should be that professionals are chasing performance. They are buying the stocks that have the largest weight in the S&P 500 index as they attempt to catch up.
This is a short squeeze or sorts. They have to buy because they can’t afford to underperform going into the end of the year. “Cash drag” is the term of art that describes the condition of portfolio managers who are not fully invested enough when markets are rising.
There is support at 4,455 for the benchmark. Expect more strength Tuesday.
The Dow fell 55 points, or 0.16%, on Monday while the Nasdaq 100 shot up 1.1%. Breadth favored decliners by a 4-3 margin and there were 782 new one year highs vs. 65 new lows. Leaders making new highs included Apple, Alphabet, Facebook, Nvidia, ASML Holding, Danaher, Accenture and ServiceNow. You may recognize most of those names as our core long-term holdings.
Technology and consumer discretionary shares, which in recent weeks came under pressure amid concern the Fed may announce a cut in its monthly asset purchase program as early as this September, were among the biggest gainers. Last week, Chair Jerome Powell opted to not provide a specific timetable for tapering as "substantial progress" has failed to materialize with regards to employment growth and as the delta variant of Covid-19 undermines confidence in reopening.
Pending home sales fell by 1.8% in July, compared with the 0.3% increase expected in survey compiled by Bloomberg and following a revised 2% decline in June, according to the National Association of Realtors. Lack of choices is turning some buyers away, according to the NAR.
In corporate news, Capital One Financial (COF) shares fell 4.3% after Baird downgraded the company's stock to underperform from neutral with a price target of $145. NetEase (NTES) shares fell 4%, the laggard on Nasdaq, as Chinese regulators cut video-gaming time for minors. Apple (AAPL) has acquired Primephonic, a classical music-streaming service with search and browse functionality optimized for classical audio and handpicked expert recommendations. Shares were up 3%, the most on the Nasdaq and the Dow.
Learn more about Jon Markman at Pivotal Point.
