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Subscribe →Stocks finished the day lower, with small caps taking the biggest hit. There has been plenty of commentary on social media suggesting that small-cap outperformance is evidence of broadening market breadth. Apparently, very few have actually bothered to look at the holdings, let alone the top 10 holdings. When Bloom Energy is the largest holding, alongside companies tied to AI infrastructure, data centers, power demand, networking, and electrification themes, it becomes pretty clear this is still the same trade driving much of the market higher.
If you look more closely, many of these companies are the very same AI-related trades currently driving Semis and large-cap Tech more broadly. By the second page of holdings, there is even more Information Technology exposure.
The point is that claiming small caps are proof of broadening breadth, without understanding what is actually in the basket, misses the bigger picture. In many respects, it is still the same thematic trade expressed through a different part of the market. Anyway, IWM printed a bearish engulfing candle today, with the ETF falling 1.6%.
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Much of it was probably driven by the roughly 10% decline in Bloom Energy — clearly a completely “unrelated-to-AI” stock — which had rallied more than 100% since March 30.
If you are a Japanese official hoping USD/JPY would respond to intervention, you are not feeling very good these days. Despite what appear to have been two rounds of intervention, USD/JPY has still been unable to move sustainably below 155. At this point, you have to wonder whether they attempt another intervention to defend that level. If not, it increasingly feels like USD/JPY could be headed significantly higher.
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Finally, I almost forgot there was a jobs report tomorrow. Apparently, the market did too, because the 1-day VIX closed at 12.4. That does not exactly look like a great setup for a volatility crush from here.
Glossary by ChatGPT
- AI Infrastructure — The hardware, software, networking, and power systems required to support artificial intelligence workloads and data processing.
- Bearish Engulfing Candle — A technical chart pattern where a larger down candle fully covers the prior up candle, often signaling potential downside reversal.
- Broadening Market Breadth — A market condition where gains are supported by a wider range of stocks or sectors rather than a narrow group of leaders.
- Data Centers — Facilities that house computing infrastructure used for data storage, networking, and cloud or AI processing workloads.
- Electrification Themes — Investment trends tied to increased electricity usage and infrastructure expansion across industries and technologies.
- ETF — Exchange-traded fund; a basket of securities that trades on an exchange like a stock.
- Information Technology Exposure — The degree to which a portfolio or index is invested in technology-related companies.
- Intervention — Direct action by a central bank or government to influence currency markets or exchange rates.
- IWM — The ticker symbol for the iShares Russell 2000 ETF, commonly used as a benchmark for U.S. small-cap stocks.
- Market Breadth — A measure of how many stocks participate in a market move, often used to assess the strength of a trend.
- Semis — Industry shorthand for semiconductor companies and related chip manufacturers.
- USD/JPY — The currency pair representing the exchange rate between the U.S. dollar and Japanese yen.
- VIX — The CBOE Volatility Index, commonly referred to as Wall Street’s “fear gauge,” which measures expected market volatility.
- Volatility Crush — A rapid decline in implied volatility, often occurring after a major market event or data release.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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