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“Tell me a musician who’s got rich off digital sales. Apple’s doing pretty good though, right?” – Prince

Morning stock market summary

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

The recent market trend in non-farm payrolls reports has been positive. Over the last nine months, the headline report came in stronger than expected seven times, and the S&P 500 has been higher eight times on the day of the report. Even including the one day that the S&P 500 was down on a “Payrolls Friday”, its average change on the day of the report was a gain of 0.63%, and the Financial sector has been positive on the day of the report for nine straight months.

We’ve been discussing weak market breadth for a couple of weeks now, including yesterday’s Closer report where we compared the weakness in the cumulative advance/decline (A/D) line to the new high in the S&P 500. Another example is the fact that while yesterday was the only day this week that the S&P 500 was down (and barely at that), the S&P 500’s net A/D line has been negative in three of the last four trading days.

While weak breadth has become especially pronounced in recent days, the trend is not new.  Look at the chart below which shows the performance of the S&P 500 market cap-weighted index versus its equalweight counterpart over the last two years. While the S&P 500 has rallied 30.3%, the equalweight index is up by just a little more than a third of that (11.3%).

Below we show the rolling two-year performance spread between the two indices over time.  At the current level of 19 percentage points, the spread has reached its widest level in nearly 24 years (6/30/00) putting it in the 95th percentile relative to all other two-year periods since 1992.  The last time the spread was this wide, it came just ahead of what ended up being a period of massive long-term underperformance for the cap-weighted index. That being said, the period during which the cap-weighted index had outperformed leading up to that lasted for years.

To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.

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