It’s not just because the blue-chip benchmark is down just 43.44 points, or 0.2%, or that the
is off 0.4% and the
has fallen 0.5%, relatively muted losses in the current environment. It’s about what is rising and what is falling.
A quick glance of the winners and losers tells the story. Of the S&P 500’s biggest winners today, only one,
(EBAY), is positive on the year, and it took outstanding guidance to do that. The remaining nine aren’t just down in 2020, they’re down at least 28%—that would be
(LUV)—and as much as 67% for
Norwegian Cruise Line Holdings
The winners are a mirror image of the losers. Just two of the top-10 are down on the year—
(EW), and they’re down just 4.2% and 6.8%, respectively. The other eight are winners, including DexCom (DXCM), down 5.6% but up 58% in 2020, and
(MKTX), which has fallen 4.2% on Thursday but is up 32% this year.
What’s happening? Call it a momentum unwind, as investors sell what had been performing well and buying what hadn’t. Jonathan Krinsky, chief market technician at Bay Crest Partners, notes that the Morgan Stanley Long/Short Momentum Index has dropped 31% since hitting a high on May 14, and is just 4% away from its 52-week low. That kind of reversal is not normal. In fact, it’s only happened three times before: in 2000, 2001, 2009. “In other words, significant inflections and tops/bottoms,” Krinsky writes. “With the NDX at all-time highs, it’s hard to suggest this is a major bottom for the Nasdaq. On the other hand, with the BKX having peaked over two years ago and coming off a -52% drawdown, it’s hard to suggest this is a major top for Banks.”
If the tech bubble really is our guide, then the market could continue this kind of sideways or even downward action as investors bail on what had been working and buying what hadn’t. But even back then, owning value and avoiding tech was one way to get positive returns.
Could it happen again?
Write to Ben Levisohn at Ben.Levisohn@barrons.com