US stocks: Weird, flat, and setting confusing new records

On the surface, this has been a very boring start to the week: a relatively small down day followed by a modest gain has the S&P 500 up 0.1% through Tuesday.

Under the hood, the price action has been so weird that we haven’t seen the likes of it in at least 27 years. 

Let’s start with Tuesday on its own: A fierce snapback in recently beleaguered tech shares, punctuated by Nvidia’s 6.8% gain, propelled the S&P 500 up by 0.4% on the day. The five biggest stocks in the S&P 500 rose, with Meta and Alphabet each up more than 2%. 

But the advance-decline line for the S&P 500 (the number of stocks up on the day less those that fell) was a whopping -274. There’s never been a session in which the S&P 500 rose this much on a day when that many stocks were actually down, in data going back to January 1997.

And now let’s look at Monday’s tape: the mirror image of Tuesday.  The advance-decline line was above +200, but the S&P 500 fell 0.3%. The success of the many could offset the pain in megacap semiconductor companies.

Tuesday was a superlative unto itself; putting the two days together yields another. In the past 27+ years, we’ve never had a session in which the advance-decline was above 200 but stocks fell followed by a day in which it was below -200 in which stocks rose (or vice versa).

What does this mean? Well, for one, it means we are somehow not running out of fresh ways to point out how market breadth has been (largely) terrible lately. 

More importantly, this dynamic also speaks to an underlying fragility within the stock market. The top-line market environment are calm, the inter-market environment is downright violent.

The trailing 20-day realized volatility of the S&P 500 information technology sector is in the 68th percentile relative to its long-term history (that is, well above average). The 20-day realized volatility of the S&P 500 is in just the 12th percentile, or very below average. That’s the biggest gap between tech sector and index level vol since at least October 2001 (the period for which we have realized volatility data available for all 11 S&P 500 sectors).

The seeming “magic” of high dispersion and low correlations between important parts of the market — that is, megacap tech, in particular Nvidia, versus everything else, is playing an increasingly important role in preventing major fireworks for US stocks at the headline level.