The US indices were down Tuesday but risk assets outperformed. A trend or another false dawn?

The US Indices were all lower on Tuesday following the recent strong run. The riskier assets performed best for the third day running. The VIX was flat at 20. The main indices were; DJIA -0.75, S&P 500 -0.76% and Nasdaq -1.01% (Mag7 -0.54%). On an equal weighted basis (our measure) the overall market was -0.25%. Breadth was fair at 47% (range of 12% to 88% over the last six weeks) volumes were strong at 9.1b (the average daily volume over the last year of 8b). 

One day returns as follows - equal weight basis: Mag7 -0.54% (NVDA -4.7%, AAPL +1.1%), large cap -0.76%, medium cap -0.43%, small cap -0.02% and micro cap -0.19%.

On a 1 and 2 week equal weight basis respectively; Market +1.5% and +1.5%, Mag7 -0.6% and +0.4%, Large caps +1.0% and +0.8%, Medium cap +1.6% and +1.6%, Small cap +2.2% and +2.1% and finally Micro cap +1.3% and +1.3%. 

Our risk monitor remains in favour of the larger cap stocks. Small and Micro caps have had a strong recent run and outperformed the wider market yesterday on a down day for the market... this is unusual. There have been a number of 'false dawns' for Micro caps which have underperformed the market by 18% over the last 12 months, but this time there is good breadth in the number of 'risk' sectors outperforming, but it still feels fragile. 

The sector bias was mixed on Tuesday, the higher risk end of the market performed well again. Energy fell for the second day following softness in the oil price. Healthcare was strong again yesterday and is now the strongest sector over the last three days and has outperformed the market over the last 2 weeks. Micro cap Biotech outperformed the market by 1% yesterday. This sector has generated negative returns over the last six months but when it runs it runs very aggressively - it was +55% from mid Nov23 to Feb24. Too early to say the is the start of another run but it is worth watching. Commercial REITs were very strong yesterday at +1.75%, pushing Real Estate up on the day. Commercial REITs have lagged more recently. Utilities continued to run following Google's deal with Kairos on nuclear energy earlier in the week. Tech underperformed on Tuesday, Blockchain continues to seesaw and was weak yesterday, but is still +3.3% on the week. Semicon was soft after the recent strong run.

A notable number of 52 week highs in virtually all sectors ex Energy: Basic Materials (Gold, Silver, non-paper Packaging), Consumer Cyclicals (across the sector ex auto), Financials (across the sector), Industrials had an exceptional number again (across the sector ex Transport) and Technology (Software & IT Services and Technology Equipment again), Real Estate (Residential & Commercial REITs), Utilities (Electric and IPPs). Note that most of the sectors and industries mentioned have been strong for a number of days.

Notable high volumes in Consumer Cyclicals (across the sector again), Industrials (across the sector) and Technology (Software & IT Services again)