There has been considerable attention focused on the narrowness of the advance from its April lows. Bloomberg writes the breadth is the worst on record going back to 1972, an ominous sign pointing to the massive concentration of wealth in a handful of companies, rising concern that any selloff could be potentially brutal for the handful of names.
Bloomberg further quantifies the narrowness by stating that only 10% of the S & P 500 companies have contributed to the advance since April.
The reasons for the current narrowness are primarily focused upon the massive proliferation of “zero day to expiration call options,” single stock levered ETFs, the massive amount of monies directed towards indexing, momentum-based trading where direction is the only variable of investment decision, and massive pressure as to not to underperform.
The narrowness and concentration concerns are not new, however, each week/month they are appear to become more acute. All must remember the markets can remain irrational one day longer than one can remain solvent or sane. However everything ultimately reverts to the mean, the question is as to when.
Commenting about yesterday’s Treasury market, yields on the thirty-year benchmark and are again broaching 5%, following a rout in longer dated German and Japanese bonds. The $58 billion auction of three-year Treasury also drew “soft demand.” The yield curve steepened nominally.
What will happen today? Will all attention be again focused on tariffs or will upcoming earnings announcements become front and center?
Last night the foreign markets were mixed. London was up 0.21%, Paris up 1.31% and Frankfurt up 1.22%. China was down 0.14%, Japan up 0.33% and Hang Seng down 1.06%.
Futures are up about 0.25% as anxiety over tariffs is again at the fore front. The 10-year is of 2/32 to yield 4.41%.
