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Why it’s good news that most stocks are falling

And it’s not because when shares go down buyers can get more at a lower price.

5/30/24 3:11PM

Some good news for the stock market: a ton of stocks have been going down.

Yes, you read that right. And I don’t mean this in the Warren Buffett-esque sort of way, where buyers of stock should be happy when shares go down because they can get more at a lower price.

But rather, it’s about what the sharp deterioration in market breadth has historically meant for future performance. Over the past two weeks, many more members of the S&P 500 have been falling rather than rising each day.

Case in point: at the headline level, the S&P 500 has made fresh record highs or fallen no more than 1.5% off those levels since May 17, but the share of its constituents trading above their 50-day moving averages has tumbled from about 65% to 38%. In other words, a small number of heavily weighted stocks *cough* Nvidia *cough* were doing the heavy lifting keeping the benchmark index in rarefied air.

This breakdown in breadth typically bodes well for forward returns, according to analysts at Bespoke Investment Group. Heading into Thursday, the 10-day market breadth (measured by the number of stocks advancing less declining) was in the bottom 10% of readings going back to 2002, they note.

Breadth this poor has actually been the most positive setup for forward returns over this span, per Bespoke.

“Low breadth readings (bottom decile) actually lead to stronger forward returns as upside mean reversion typically occurs; the bottom decile (where breadth currently sits) is the strongest-performing decile of the bunch across the next day, week, month, 3 months, 6 months, and year,” the analysts write.

Market breadth has improved meaningfully on Thursday. As we enter the last hour of trading, 9 of 11 sectors are positive and more than 350 members of the S&P 500 are positive. But that’s not translating to gains at the index level because of a big selloff across tech stocks. Effectively, the price action Thursday is the exact opposite of what’s been happening for the past two weeks.

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The S&P 500 and Nasdaq 100 notch new closing highs as investors shake off the government shutdown

The S&P 500 closed 0.3% higher, the Nasdaq 100 was up 0.5%, and the Russell 2000 gained 0.2%.

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Intel jumps on report of customer talks with AMD for foundry division

Intel shares popped in afternoon trading Wednesday after Semafor reported that it’s in preliminary talks for AMD to come aboard as a customer for Intel’s troubled contract chip manufacturing division, known as a foundry.

Shares were recently up 5.7%.

Semafor stressed that sources said, “It’s unclear how much of their manufacturing would shift to Intel if the two companies reach a deal, or whether it would come with a direct investment by AMD, similar to the deals cut by other companies. It is possible that no agreement will be reached, the people said.”

The addition of AMD — which competes with Intel in the CPU space — as a customer would be another big win for the US chipmaker following its partnership with Nvidia announced in mid-September.

TSMC, the primary manufacturer of AMD chips, was only briefly rattled by the news, and remains well in the green on the day.

Intel in early talks to add AMD as foundry customer

The addition of AMD — which competes with Intel in the CPU space — as a customer would be another big win for the US chipmaker following its partnership with Nvidia announced in mid-September.

TSMC, the primary manufacturer of AMD chips, was only briefly rattled by the news, and remains well in the green on the day.

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ChargePoint jumps as EV sales soar

Riding along with some other EV stocks, shares of ChargePoint jumped 4.1% in recent trading. The last rush to take advantage of Biden-era federal EV incentives has put a bunch of new electric vehicles on the road, sending ChargePoint up along with Tesla, Rivian, and Lucid.

Ford said earlier Wednesday that its EV sales hit a quarterly record, and it and other EV makers have been exploring unorthodox ways to replicate the EV tax credits for consumers through year-end.

Still, ChargePoint is down over 47% for the year and narrowly escaped NYSE delisting with a 20-for-1 reverse stock split back in July. And it’s not hard to see why: the company has never had a profitable quarter.

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Trump admin reportedly backs off on pharma tariffs

The Trump administration will not be imposing tariffs on pharmaceutical companies by the deadline it had initially given them, a White House official told STAT.

Last week, President Trump announced on Truth Social that starting on October 1, there would be a 100% tariff on patented, branded pharmaceuticals “unless a Company IS BUILDING their Pharmaceutical Manufacturing Plant in America.” As of October 1, those tariffs have not gone into effect and it’s unclear when they will, according to STAT.

Trump administration backs off 100% pharma tariffs threatened to start today

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GE Vernova declines after analyst downgrade of top AI energy trade

Power turbine maker GE Vernova is down midday after RBC analysts cut their rating on the stock from “outperform” (essentially a “buy”) to “sector perform” (essentially a “hold”), suggesting that long-term earnings expectations for the company might have gotten too optimistic.

RBC’s Christopher Dendrinos wrote:

“Our longer-term expectations are more conservative than consensus expectations which we think could be over appreciating the cadence of revenue growth in the power segment in 2029-2030. We believe investors are already fully valuing the company on the longer-term 2030 outlook and there could be more limited opportunity for positive rate of change in current expectations.”

Dendrinos argues that the Street’s expectations for when the river of payments will materialize from the service contracts GE sells to maintain the newly installed turbines is too soon. He wrote that it will take a much longer cycle:

“Mgmt sees an opportunity to double the installed base of baseload power over the next 10 years which should support significant rev growth and stronger margins (we estimate gas service margins over 30%).

However, the first major service cycle typically occurs ~3-4 years after installation so the benefit of service price increases and new LTSAs are unlikely to begin to benefit the income statement until later in the decade and will be a gradual increase.”

Earlier in the year, GE Vernova was a top performer as the AI data center trade boomed. It was up roughly 100% for the year in late July, making it the third-best gainer in the S&P 500 for the year.

It has stalled since then, though it remains up more than 80% in 2025.