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If you only looked at the headline indexes on Thursday, you would think that the market had done a good job of hanging in there, especially after a disappointing report on unemployment claims. However, a look at the actual stocks that make up the indices tells a very different story.
The Dow Jones Industrial Average advanced 46.85 points, up 0.2% on Thursday, while the S&P 500 rose 0.3%, and the Nasdaq Composite 1.1%. All in all, it looked like a pretty good day.
Just look at the S&P 500 and you see that just 153 stocks are higher on the day, while 346 are lower, suggesting a much broader weakness. Some 11 Dow stocks finished higher, 18 finished lower, and Merck (MRK) closed unusually.
The market again gets a lift from Apple (AAPL), which is 1% up to 467.47, as well as smaller gains in Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOGL) and Facebook (FB). Together, these stocks make up more than 20% of the S&P 500, so you do not need many more positive stocks to raise the index.
The lack of breadth of the market has been a concern for some observers. When the S&P 500 hit a new high on Tuesday, Bespoke Investment Group noted that the breadth was weak. But it also noted that it was not much of a concern for the general market. Indeed, just over 10% of the hefty time in the S&P 500 since 1990 has come on days with negative latitude. Strikingly, the market actually performed one year after the new highs were made on days with poor latitude, winning an average of 13.2%, better than the 11.9% that followed at all new highs. “Although counter-intuitive, weak latitude readings at very high altitudes in the past have actually been followed by stronger returns than times when latitude was positive,” Bespoke writes.
That’s one way to view the event. Bay Krest Partners’ Jonathan Krinsky, has another. He looked at all the days where the S&P 500 finished the day higher, but the forward / down line dropped 150 points or more, as it did on Tuesday. There were only six previous occasions: one in 1998, which preceded a double-digit advance; one in 1999, which saw a 7% decline; two in 2000, when the dot-com bubble peaked; one in 2015, just before a 15% decline; and one in May 2020, which came before a three-day decline of 6%. “So far, the August event two days ago has not led to much of anything,” Krinsky writes.
Let’s hope it stays that way.
Write to Ben Levisohn at [email protected]
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