Another broad advance by the market with micro caps outperforming .. but it feels fragile

The US Indices were mixed on Friday reflecting weakness in Technology Hardware stocks - likely due to profit taking after they performed very strongly on Thursday. The Mag7 were also down slightly but all market caps bands were up. The VIX was up slightly at 17 - it hit 65 intraday on 5 August, its highest level since Covid in 2020. The main indices were; DJIA +0.33%, S&P 500 -0.13% and Nasdaq -0.39% (Mag7 -0.19%). On an equal weighted basis (our measure) the overall market was up 0.75%. Breadth remained strong at 61% (range of 12% to 88% over the last six weeks) volumes were flat at 8.1b (the average daily volume over the last year of 7.8b and hit 15bn on Friday 8/20). 

One day returns as follows - equal weight basis: Mag7 -0.19% (TSLA +2.1%, NVDA -2.1%. AMZN -1.7%), large cap +0.37%, medium cap +0.48%, small cap +0.68% and micro cap +0.97%. On a 1 and 2 week equal weight basis respectively; Market +1.1% and +2.3%, Mag7 +1.7% and +4.3%, Large caps +1.7% and +3.6%, Medium cap +2% and +4.3%, Small cap +0.9% and +2.5% and finally Micro cap +0.7% and +1.3%.

All the sectors ex Basic Materials were in positive territory on Friday. The sector bias was most definitely in favour of the Bull market sectors. Basic Materials was -0.7% reflecting profit taking after a very strong recent run for the sector, Aluminum stocks +0.5%, Iron +0.1% but all other metals were down, Gold -3.2%. Consumer Cyclicals was strong on the back of Auto and Specialty Retailer (Auto, Home Furnishing and Improvements - investors are likely hoping for an improvement in these industries post the interest rate cut) Technology was pushed higher by FinTech and Software. Even Healthcare managed to outperform including a Biotech beating the market for the first time in two weeks. Healthcare continues to be the worst performing sector and has underperformed the Market by 3.4% over the last week and 11.7% over the last 6 months.

A notable number of 52 week highs in the following sectors: Consumer Cyclicals (Cyclical Consumer Products and Services) Financials (across the sector), Industrials (across the sector ex Transportation), Real Estate (Residential and Commercials REITs) and Technology (Software & IT Services) and Utilities (Electric & IPPs). Notable high volumes across the Market ex Utilities again, Energy and Basic Materials.

The Markets are still struggling to work out the underlying direction following the interest rate cut. Whilst the market is overall slightly up post the Fed decision there are daily swings both ways. Micro cap stocks performed the strongest over the last two days and this suggests the markets are less nervous but two days is not a trend and can reverse immediately.