Sector Rotation vs Weak Breadth

JC Parets
May 29, 2023

You're hearing a lot these days about weakening market breadth.

But if you've noticed, those lies are only coming from journalists and other types of people with no formal training or experience in technical analysis.

That's like me pretending to be an expert in chess because I watched some people playing this one time in Washington Square Park.

If you think that the Equally-weighted S&P500 underperforming is evidence of deteriorating market breadth, you fall into this category of the misinformed and confused.

It's not a market breadth thing. It's simply a sector rotation thing.

If Tech and other growth stocks are market leaders, then of course the equally-weighted S&P500 is going to underperform lol.

At the same time, if Tech and other growth is underperforming, then the Equally-weighted S&P500 is going to outperform (see the back half of 2022).

It's just basic arithmetic.

You can see here how the Equally-weighted S&P500 vs Cap-weighted S&P500 trades tick for tick with the Value vs Growth Ratio.

And if you're wondering why the S&P500 and Dow Jones Industrial Average are underperforming the Nasdaq, it's for the exact same reasons.

The Nasdaq100 has way more Tech and Growth exposure than the S&P500, and it has way way more than the DJIA.

Again, it's just simple math.

It's not a market breadth thing.

It's a sector rotation thing.

Please feel free to email me with any comments or questions.

We love to hear from you!

JC

 

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