Having just hit record highs following an historically impressive 13-day winning streak, stocks are susceptible to a pullback or, at a minimum, consolidation. Beyond the direction over the next week or two, the bigger question is what comes after that. The answer to the question will present itself over time. However, in the meantime, we can focus on breadth to help get a step on the market.
Regarding breadth, consider that despite the S&P 500 being at a record high, only 65% of stocks are above their 20-day moving averages, 54% above their 50-day moving averages, and 60% above their 200-day moving averages. The graph below, courtesy of Charles Schwab, shows that a large majority of stocks, broken down by sector, are below recent monthly, quarterly, or 52-week highs. Even in the leading sectors, like technology, only 58% of the underlying stocks are at a 4-week high. Interestingly, despite trading in the mid-$90s, none of the energy sector stocks are trading at a recent high. The broad breadth takeaway is that a few stocks are leading the market higher, while many others are not keeping up.
We would like to see breadth improve to increase our confidence that the market will continue to move higher over the next few months. When a good majority of stocks across many sectors rise together, it reflects genuine, widespread bullish conviction and real money flowing into equities. A narrow rally, as we have thus far, is often driven by momentum chasing and sector-specific themes. That kind of demand is weak and can reverse more easily.
What To Watch Today
Earnings
Economy
Treasury Buybacks: Money Printing Or Prudent Cash Management?
We were forwarded the tweet below and asked, “Why is the Treasury printing money?”
The quick answer is they are not printing money. The $15 billion in buybacks consisted entirely of securities maturing within a year. The money to buy the securities will come from the excess cash they are holding. The excess cash is from prior issued debt securities and tax revenue. What they are really doing is shifting their future cash flows. They are likely spreading future principal payments over time and avoiding large, chunky payments. This cash management exercise results in no money printing or changes to their outstanding debt. It’s just a smart way for the Treasury to handle its enormous cash inflows and outflows.