Joe Tigay Small Cap Catch-Up: Market Reset?
Make sure to catch me every week on the Trading Zone where we take a deep look at markets, portfolio management, and volatility.
First things first: earnings season is upon us! Big names like Netflix, ASML, Johnson & Johnson, Boeing, Microsoft, UnitedHealth, and Taiwan Semiconductor are all set to report. This comes hot on the heels of a recent market shift where investors are taking a break from the mega-cap party and heading towards the smaller, scrappier small-cap companies.
Now, let’s talk about the elephant in the room: the Magnificent Seven (Mag 7). They’ve been on a tear since the beginning of 2023, skyrocketing a whopping 140% while the rest of the S&P 500 (SPX) has been stuck at a measly 20% gain. This kind of dominance can be a double-edged sword. Sure, it’s exciting to see them soar, but it also makes the market a bit lopsided.
Remember that big CPI report? Well, when it came out, the Mag 7 took a tumble, but guess what? The rest of the market didn’t! This is a good sign, folks. The broader market is showing some serious resilience, and that upward trend line on the SPX chart? Still chugging along beautifully. Pullbacks are just buying opportunities as long as that trend keeps climbing!
SPX 2 Year Trends
Now, let’s talk options. The bulls are still in control, with more and more investors buying call options (bets that prices will go up). But here’s the catch: all this buying can create a “call wall,” making it harder for some stocks to jump even after stellar earnings. So, keep an eye out for that, especially during earnings season.
Skew 2 Year
Speaking of volatility, the VIX (fear gauge) is throwing us some curveballs. The August futures are showing a premium, indicating some folks expect bumpy roads ahead. Meanwhile, October futures are hinting at continued elevated volatility. Remember, volatility is like a pebble tossed in a pond – it sends ripples across all parts of the market.
VIX Futures Curve
Big Story: Russell 2000 Catchup
But here’s the real story this week: the small-caps in the Russell 2000 are finally waking up! They’ve been lagging behind for ages, but this past week they had a breakout, testing their all-time highs. This is a fantastic sign for the overall health of the economy, folks. It suggests a recession is unlikely, and that AI magic from the mega-caps is starting to trickle down to the rest of the market.
Russell 2000
In the tech sector, keep an eye on Taiwan Semiconductor (TSM). They’re like the secret weapon of the AI revolution, churning out the chips that power Nvidia’s (NVDA) success. Demand for their products is still scorching hot, and they don’t seem to be slowing down anytime soon.
TSM Chart
So, the Mag 7 may have had their moment in the sun, but don’t count the rest of the market out just yet. There are exciting opportunities brewing in the small-cap world, and the overall trend for the SPX is still positive. Stay tuned, folks, because this market is just getting warmed up!
The current market landscape presents a fascinating dichotomy. Market Conditions: The market is bullish (upward trend) despite a high MAG 7 (risk indicator). This week’s earnings reports will be crucial in determining whether this upward momentum can be sustained. The Russell 2000’s recent breakout suggests a broadening of market strength beyond the mega-caps, potentially signaling robust economic health. Meanwhile, the tech sector, particularly companies like TSM, continues to play a pivotal role in driving market trends. As we navigate through this earnings season, investors should remain vigilant, keeping an eye on volatility indicators and sector-specific developments that could influence the overall market direction.
