Summary: We often hear concern from clients during uneven markets in the fall, and September and October are the months that prompt the most questions. We encourage you to watch this week’s webcast to understand what we are seeing in the data, why we are holding more cash than usual, and why the positioning has not changed.
The headline is that the S&P and the Nasdaq 100 are within 1% of their all time highs after a strong Monday, driven by the Magnificent 7 and a four day rally in semiconductors. Underneath, the picture is different. The equal weight S&P is 5% off its high and has been weakening since mid August. 82% of S&P companies are more than 10% off their highs, and 17% are down 50% or more. On Monday, 1% of S&P stocks made a 52 week high while 5% made a 52 week low.
The percent of NYSE stocks in long term uptrends has fallen from 60% in August to 40% today, and the S&P figure has fallen from 70% to 38.5%. Breadth did not improve on the rally. Our process is to find the leadership, watch for change, and be prepared to play defence, and no bear market has started while breadth was expanding. So we are cautious, not bearish, with cash at 12 to 13%.
Outside the US, breadth is better. The TSX has made higher highs for six straight months. Developed markets ex US are up about 6% since July, and the emerging markets ETF is up 3% in September after 6% in August, extending the relative outperformance against the equal weight S&P that began in 2024.
Fixed income remains difficult, with 10 and 30 year yields rising in the US, Europe and Asia and the US, German and Japanese long bonds at new lows. Commodities are up 22% since July 1st, gold stocks are outperforming gold again, and copper has turned higher off its breakout. Across the book, financials remain the biggest weight, materials are 17% against about 3% in the index, energy is 14%, tech is 11%, and health care is rising. We hold no consumer, communications, utilities or real estate. We cut the industrial basket by about 30%. What we want to see next is a follow through day on heavy volume and, more important, breadth starting to expand.
The index and the average stock have diverged. The S&P and the Nasdaq 100 are within 1% of all time highs, but the equal weight S&P is 5% off its high and weakening since the second week of August. 82% of S&P companies are more than 10% below their highs, 40% are down 30% or more, and 17% are down 50%.
Cash generators are still the core of the book. Financials are the biggest weight, materials are 17% against about 3% in the index, energy is 14%, and tech is 11%. Commodities are up 22% since July 1st, gold stocks are again outperforming gold, and copper has turned up off its breakout. Following the first Fed hike of a cycle, commodities have historically done well relative to fixed income.
Bond proxies and consumer names are where the pain is. The bond bear market that began in March 2020 has not ended, with US, German and Japanese long bonds at new lows. Utilities, consumer staples, REITs and consumer discretionary are all weak. We hold none of consumer, communications, utilities or real estate.
International equities and Canada have better participation. The TSX has made higher highs six months in a row. Developed markets ex US are up about 6% since July. The emerging markets ETF is up 3% in September after 6% in August. International has been outperforming the equal weight S&P since 2024, and we hold larger than normal Canadian and international weights.
Monday’s rally came with a rare statistic. With the index within 1% of a high, 1% of S&P stocks made a 52 week high and 5% made a 52 week low. The only comparable readings in 100 years were January 1973 and November 1999. We are not building a forecast on one data point, but we are watching for a follow through day and an expansion in breadth.
Breadth is contracting, and it did not improve on the rally. NYSE stocks in long term uptrends fell from 60% in August to 40% today; the S&P figure fell from 70% to 38.5%. Stocks with positive price momentum fell from 80% to just over 20%. No bear market has started while breadth was expanding, which is why cash is 12 to 13%.
