After a week where most major asset classes posted significant gains, last week was all about seeing which ones could maintain the momentum and whether stocks or bonds were really driving the market. The reality is that we may not have a better idea today than we did 7 days ago.
While the S&P 500 was up 1.4% and growth & tech were both up by roughly 3%, internal breadth looked terrible. The equal-weight S&P 500 was down 0.6% and small-caps lost 3%. If this is a big risk-on move for the markets, only mega-caps got the message, which is not a good sign for a sustained move higher. This looks a lot like equity investors were willing to buy everything based on the Fed pivot, but they’re still very skeptical about the direction of the global economy. I think that’s why we’ve seen some of the historical recovery trade leaders - small-caps, emerging markets, value stocks - really struggling here even though sentiment is supposedly very bullish over the past two weeks. It’s still possible we see a rally heading into the end of the year as everyone is hoping for. If it does happen though, it sure looks unlikely that everyone will be along for the ride.
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