This article is written exclusively for Invesing.com
While it seems to be making new highs on a regular basis, something beneath the surface is churning. Many stocks and sectors within the broader stock market are in a correction or fully fledged bear market. Even Amazon (NASDAQ :), which was just a great first quarter, doesn't seem to be able to find a bid these days, dropping about 10% from the off-hours peak on April 29.
Meanwhile, a handful of industries are down more than 20%, such as the SPDR® S&P Biotech ETF (NYSE :), which is down nearly 30%. In addition, the Invesco Solar ETF (NYSE 🙂 is down about 40%. Even the high-flying ARK Innovation ETF (NYSE 🙂 is down more than 30%.
The Carnage
The carnage has spread across the market, with high-flying stocks such as Roku (NASDAQ :), Twilio (NYSE 🙂 and Zoom Video (NASDAQ :). Given the still-high valuation, it doesn't look like they will recover anytime soon. For example, Zoom, despite a decline of about 50%, is still trading at 60 times its estimated 2024 earnings of $ 4.98 per share. While Roku is trading 132 times in 2023, it is estimated to be worth $ 2.58 per share.
It's more than just the few names mentioned above. There is a notable breakdown that occurs within the percentage of stocks in the stock market above their 50-day moving average that has been floating down since mid-February. Currently it is only 50%, against about 85%.
Divergences
Even more surprising is the difference between the percentage of stocks in the market above their 50-day moving average versus the same percentage in the S&P 500 Currently the difference is about 27%, the main difference dates from 2007.
It is worth noting that this divergence does not end there. When the percentage of stocks above their 50-day moving average shows a lower trend as the S&P 500 rises, the market tends to eventually follow the trend of the stocks above their 50-day moving average.
% age of stocks above 50DMA
It seems to indicate that while everything seems fine on the surface, below the surface, given the magnitude of some of the declines, there is something sinister about the hand. Perhaps even a stealth bear market that has yet to reach the surface of the S&P 500 components with a larger hood.
Pain to Come?
Whether the larger, by market capitalization, S&P 500 is ready to correct is up for debate. Indeed, you could say that something strange is going on. Even some of the largest companies outside of Amazon have reported great earnings and are down. (NASDAQ 🙂 and (NASDAQ 🙂 are other examples of a few stocks that are struggling to recover despite strong results. It may be that the market is telling us that the road will be difficult for these companies in the future and that the easy profits are over.
No matter what goes on beneath the surface, there is a lot of carnage. Many sectors and stocks are hammered as the major indices race to higher and higher levels. Is it a warning sign of pain coming to the S&P 500 anytime soon? Or is there just a stealth bear market taking place while sector rotations take place? Time will tell.
