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You bought the S&P because it holds 500 companies.
About half of them are broken.
Half the index is trading below its 200-day moving average right now, while the index itself sits near record highs.
Every headline this week has been about what the Fed did or didn’t do, but it’s the 200-day MA number I’m paying attention to… and almost nobody is talking about it.
The 200-day is just the average closing price over the last 200 sessions, and there’s nothing magic about it. It’s a rough line between a stock that’s working and one that isn’t.
When an index goes up while half its members sit below that line, you’re not looking at a market. You’re looking at a handful of enormous companies carrying everybody else.
That can go on for a long time. It went on for most of 2021. But it tells you something about what you own when you buy the index: there’s a lot less diversification than the name suggests.
Wednesday, the Fed raised rates for the first time since 2023, a quarter point, unanimously.
The Dow fell 631 points, the S&P gave up 0.45%, and the 10-year Treasury pushed above 5% for the first time since 2007.
Then Thursday the market took a good chunk of it back, yields came off their highs, and oil eased on signs the Saudi supply problem is clearing.
So which day was the real one?
Neither, and that’s my point. Two sessions in opposite directions tell you nothing about anything. The breadth number was the same on both days.
Somebody pointed out that this was the first time since Alan Greenspan’s Fed in 1997 that the S&P closed lower on the day of the first hike of a new cycle.
29 years. Every other first hike, the market went up on the day.
Which either means this one is different, or it means the market got it wrong on Wednesday and spent Thursday correcting the mistake.
I don’t know which. And the truth is, nobody does.
Stop watching the index and start watching what’s inside it.
First, go look up the percentage of S&P 500 stocks trading above their 200-day. It’s published daily and it’s free, and it takes about a minute to find.
Second, pull up the sector performance table and see which groups those names are sitting in. Right now, the answer looks like technology with a handful of the biggest names thrown in. The rest of the market is treading water at best.
Third, check your own holdings against that same line. If most of what you own is below its 200-day while the index climbs, you’re not participating in this market. You’re watching it.
When the breadth number turns, you’ll see it in your portfolio before you see it in the index. The index is the last to know.
Four times a year, every Fed official writes down where they think interest rates should be in a year. Those get plotted as dots on a chart, and the market uses that chart to guess what the Fed does next.
Kevin Warsh has never put his own dot on it. The chairman doesn’t forecast.
So on Wednesday the market traded off a chart that 17 people filled in, and the guy running the meeting left blank.
