Monday, Mar 27, 2023

What stock market indices are really saying, hedge fund strains, BTC liquidity, Nasdaq's intriguing move and more...

“The lesson is that no amount of sophisticated statistical analysis is a match for the historical experience that ‘stuff happens’.” – Mervyn King ||

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MARKETS

Trouble brewing?

The S&P 500 ended Friday up for the second week in a row, which on the surface makes little sense given the building worry over the recession that a growing number of economists and analysts are convinced is within sight.

However, the S&P 500 is, strangely, not particularly representative of the economy or even the broader stock market. It’s increasing concentration in a handful of names has been a concern for some years now, especially since those names are tech stocks: the top six companies by market capitalization are Apple, Microsoft, Amazon, Tesla, Alphabet and Nvidia, and tech comprises almost 30% of the index. This is made even more relevant by the different risk profile and market drivers for tech vs other sectors – expectations of a market collapse the resulting a Fed pivot are keeping tech stocks up as they tend to be more sensitive to monetary liquidity, while recession concerns are hitting the rest of the market.

If each company in the S&P 500 were given equal weighting, the index would be down approximately 6% so far this month (as of last Thursday). And when you compare the performance of the S&P 500 to the broader Russell 2000, you see a different story.

(chart via TradingView)

So, stock watchers would be forgiven for thinking that things are ticking along nicely in spite of bank rumblings. Unfortunately, this is not so.