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Subscribe →Stocks finished the day mostly flat, with the S&P 500 up less than 20 basis points and the RSP down fractionally. However, this pushed dispersion in the index even higher. The Dispersion Index closed the day near 40.5, above its level prior to the mega-cap earnings reports, which is something I have not seen in recent memory.
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The move continues to be all about technology, with the XLK ETF outperforming the S&P 500 by 20.5 percentage points over the past 30 days. Meanwhile, every other major sector has underperformed the index over the same period.
On a five-year lookback, the gap between the SPX’s move and the average sector’s move is now in the 0th percentile. Just to make that clear: the zero percentile. The S&P 500 is up 16.4% over the past 30 days, but the average sector has only moved 9.5%. That gap has never been wider in five years. Tech is roughly 30% of the index and up nearly 37% — it alone is doing about two-thirds of the SPX’s move. Strip it out, and the rest of the market looks far weaker than the headline suggests.
The 10-year managed to push just barely above the downtrend today, although it was not the cleanest breakout one would want to see. Breaking out through a period of consolidation is not ideal and, in many cases, is not really a breakout at all.
In theory, for the 10-year to begin moving meaningfully higher from here, it likely needs to break above 4.45% and do so fairly quickly.
High-yield credit spreads have notably turned higher over the past couple of days, while the S&P 500 earnings yield has moved lower. That is a divergence worth watching because one of them is likely wrong. Given where dispersion is and how much technology has outperformed the broader S&P 500, my guess is that the S&P 500 is the one that is wrong.
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Finally, the oil volatility index rose today and broke above two downtrend lines. If the OVX truly breaks out and continues higher from here, the party may be over.
In the meantime, the OVX-to-VIX ratio also broke below an uptrend line, which is certainly something worth watching.
–Mike
Glossary by ChatGPT
- Dispersion Index — A measure of how differently stocks within an index are performing relative to one another.
- Earnings Yield — A company’s earnings per share divided by its stock price, often used to compare equities with bond yields.
- High-Yield Credit Spreads — The yield difference between lower-rated corporate bonds and comparable Treasury securities, reflecting perceived credit risk.
- OVX — The CBOE Crude Oil Volatility Index, which measures expected volatility in oil prices.
- OVX-to-VIX Ratio — A relative measure comparing oil market volatility expectations to broader equity market volatility expectations.
- Percentile Rank — A statistical measure showing how a value compares to historical observations within a dataset.
- Realized Dispersion — The actual observed variation in returns among stocks within an index over a specified period.
- RSP — The Invesco S&P 500 Equal Weight ETF, which equally weights all constituents of the S&P 500.
- S&P 500 — A market-capitalization-weighted index tracking 500 large publicly traded U.S. companies.
- XLK ETF — The Technology Select Sector SPDR Fund, an ETF tracking large-cap U.S. technology stocks.
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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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