Chinese stocks distorting sector performance ahead of Friday's September nonfarm release

The US Indices were all up on Monday ending a strong September for the market. Mag7 was up as were all market caps bands ex large cap. 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 +0.04%, S&P 500 +0.42% and Nasdaq +0.38% (Mag7 +0.64%). On an equal weighted basis (our measure) the overall market was up 0.3%. Breadth was fair at 51% (range of 12% to 88% over the last six weeks) volumes were healthy at 9.1b (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 +0.64% (AAPL +2.3%, GOOGL +1.2%), large cap flat, medium cap +0.26%, small cap +0.18% and micro cap +0.48%. On a 1 and 2 week equal weight basis respectively; Market +2% and +2.6%, Mag7 +1.6% and +5.7%, Large caps +1.2% and +2.9%, Medium cap +2.3% and +4.5%, Small cap +1.6% and +2.5% and finally Micro cap +2.4% and +2.1%. 

Our risk monitor remains in favour of the larger cap stocks. Small and Micro stocks have proved far more volatile than the Large and Medium cap stocks over the last six weeks. Micro caps are now the best performer over the last week but they have underperformed the market by 18% over the last 12 months. This outperformance will likely prove short lived days should any nervousness return to the market - September nonfarm payroll is released on Friday this week.

The sector bias was in favour of the Bear market sectors on Monday. The run in Chinese stocks is distorting the market and continues to push the Academic and Educational sector higher. Real Estate (Real Estate Operations was also a strong beneficiary from the run in Chinese stocks), Financial and Industrials all had breadth of c60% and outperformed the wider market. Healthcare managed to outperform including Biotech beating the market for the second 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 11.4% over the last 6 months. Soft Fintech pulled the Tech sector down - Fintech has outperformed the market by 7% over the last two weeks so some profit taking was likely. Elsewhere the very strong Chinese stocks have had an positive impact on a Consumer Cyclicals - Auto Retailers

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), Industrial (across the sector - another beneficiary of the Chinese stocks), Technology (Software & IT Services) and Utilities (Electric & IPPs). Notable high volumes across the Market ex Utilities again, Consumer non-Cyclicals and Basic Materials.