The Great Market Divide

Daniel Laboe
·2-min read

We are having a low volume week in the stock market as equities grind higher, following one of the most exciting market weeks of the summer. The US just experienced the worst economic contraction in modern history with the US Commerce Department reporting an annualized GDP decline of 32.9% last week. Unemployment remains at its highest level since the Great Depression, and jobless claims remain steady at more than 1 million per week.

Now the S&P 500 is only 2% off its all-time highs with secular tech continuously propelling the market higher. We need cyclical sectors like utilities, REITs, industrials, financials, and energy stocks to start participating in this market rally if we are going to continue higher.

Will the sensational tech-driven rally continue, or have the markets gone too far too fast?

The Great Divide

The 5 largest tech innovators, aka Apple AAPL, Amazon AMZN, Microsoft MSFT, Alphabet GOOGL, and Facebook FB, all hit all-time highs over the past 2 weeks demonstrating vicious share price surges from the March lows.

While these 5 names drive a continuously larger portion of the S&P 500 (currently around 23%), their gains alone will not be enough to keep the equity markets tenacious rally going.

There is still a massive performance divide between the tech-driven Nasdaq 100 and other sectors. Year-to-date the Nasdaq 100 is outperforming the S&P 500 by 24%, utilities XLU by 31%, industrials XLI & REITs VNQ by 37%, and banks KBE by an astounding 59%.

We are going to need cyclical to start joining the stock market recovery before we push any higher.

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Microsoft Corporation (MSFT) : Free Stock Analysis Report, Inc. (AMZN) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Vanguard Real Estate ETF (VNQ): ETF Research Reports
Industrial Select Sector SPDR ETF (XLI): ETF Research Reports
Facebook, Inc. (FB) : Free Stock Analysis Report
Utilities Select Sector SPDR ETF (XLU): ETF Research Reports
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
SPDR SP Bank ETF (KBE): ETF Research Reports
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