New Highs in the Indices—but Look Under the Hood

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The stock market: some divergences. I look at the stock market, here is what I see:

1) Major Indices: multiyear highs

2) Breadth: still advancing but more slowly

3) new highs: receding

Hm. Multiyear highs in the major indices, but new highs receding? Paul Hickey at Bespoke Investment noted to me that the percentage of net new highs on the S&P 500 today (Thursday) is 3.4 percent. Yesterday, it was 6.4 percent. That is not impressive.

For the sake of comparison, the last time the S&P 500 was at these levels the percentage of new highs was in the high teens to low 20 percent range.

Part of the problem: the biggest names by market capitalization — like Apple and Microsoft — are pushing the major indices around, but smaller stocks are lagging.

You doubt me? Since February 1st, the S&P 100 (the largest 100 stocks) is up 4.2 percent, while the Russell 2000 (the major small cap index) is up 1.3 percent.

Smaller cap stocks are just not advancing as much.

Several groups emerged as leadership stocks in January — all on the hopes of a stronger economy. These groups had big runups, but have fallen back in the past month. They include:

1) homebuilders. They had big runups in December and January on hopes for a housing turnaround. It's happened: orders are up 25 percent at some builders, but it seems priced in now;

2) airline stocks, killed by higher oil in February;

3) steel stocks, up 50 percent in some cases in the past five months but global demand is still modest.

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