According to technical strategists, the narrow leadership in the stock market and the daily rotation between various groups suggest that Wall Street’s recent highs may be hollow. The S&P 500 and Nasdaq Composite Index rose in the second quarter and are now within 1% of their all-time highs. But a closer look suggests that investors’ risk tolerance is running out. Rob Ginsburg, a strategist at Wolf Research, noted that small-cap stocks and Bitcoin have recently fallen, which could be considered a risk-off signal. IWM 1M mountain Small-cap stocks are falling, as this Russell 2000 ETF shows. “It’s great to see the S&P and Nasdaq hitting new highs, but something is clearly wrong when the major barometers of risk are reversing,” Ginsburg wrote. Even among the stock market’s bigwigs, there seems to be no consensus. Nvidia, Microsoft and Apple shares have risen in just three of the past six trading sessions, but each had a different combination of up and down days. “[S & P 500] and [Nasdaq Composite] “This reminds me of the children’s game ‘whack-a-mole,’ because every time one mega-cap stock falls, another pops up, quelling volatility and keeping the index going higher,” said Jonathan Krinsky, a strategist at BTIG. These latest signs of weakness are part of a long-standing concern about the market’s lack of breadth. Excitement, especially around artificial intelligence, has boosted mega-cap tech stocks, while smaller companies and those not related to AI have struggled. For example, the Invesco S&P 500 Equal Weight ETF (RSP) is down more than 3% in the second quarter, while the regular S&P 500, which is weighted by each company’s market capitalization and therefore heavily influenced by big tech stocks, is up more than 4%. RSP’s year-to-date peak Equal Weight S&P 500 is headed for a loss in the second quarter. “Equal Weight RSP is now down below 50%.[-day moving average]”It’s about 4% off its year-to-date high. Bears have been unable to reverse the decline because of large-cap stocks, but concerns remain given concentration risk and complacency,” Krinsky said.—CNBC’s Michael Bloom contributed to this report.
