Small Caps Indicate US Confidence Crumbling
CMC Markets | Oct 03, 2018 13:03
Originally published by CMC Markets
Ever heard an analyst talk about "market breadth" and wondered what the heck they're talking about? Or seen a market rise described as "narrow"? US action last night illustrated the point exactly. The US 30 rose, the S&P 500 was flat and the Nasdaq 100 and US Small Cap 2000 fell. Investors focussed narrowly on the high market value, "blue chip" stocks. This can be interpreted as a sign of investor caution, and is why some see narrow rises as low quality.
The reverse is also true. When broad indices with a large number of stocks outperform their blue chip peers its often considered a sign of increasing investor confidence.
Now look at the chart above. Over the period April to August the US Small Cap 2000 beat the US 30 by around 7.5%, an indication of growing confidence among US investors. However in just one month over September that outperformance has more than reversed, with an 8% relative fall from the US Small Cap 2000. This could mean US investor confidence is crumbling, and suggests a larger market sell-off could be on the way.
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