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Daily Market Update – July 21, 2015 (8:30 AM)
Earnings are coming through this morning and some of the methodology differences in calculating the DJIA and S&P 500 are resulting in another divergence between the two this morning. That happens whenever a DJIA component, or two, that happen to be relatively high priced per shares, as is the case this morning, have large moves in the same direction. The size of those moves is more accentuated in the DJIA than in the broader index that is market capitalization weighted, rather than being price weighted. For example, IBM’s move thois morning is contributing about 56 points to the DJIA, although in the wrong direction. United Technologies is doing the same, but only reducing the index by about 25 points. Of course, they have some considerable impact on the S&P 500, as well, since they are so large, but much less than on the DJIA and none on the NASDAQ 100. While that’s always interesting, sometimes those divergences actually say something more than simply reflecting on the way the indexes are calculated. In the previous week that dichotomy existed all through the week and included the NASDAQ 100, as well, which was the great out-performer, with the DJIA lagging behind the S&P 500, as well. What the recent market has been reflecting is that the advance from the 5% mini-correction has been very much led by a small number of very large market capitalizatoin stocks. Those stocks also happen to have been NASDAQ 100 stocks. While the market was just a hair away from setting a new high on the S&P 500 and while the NASDAQ has again closed at another new high, the advance has been nowhere near as broad as you might believe. It’s very much been a phenomenon of a handful of companies that are distrorting the indexes, especially the S&P 500 and the NASDAQ 100. That creates a condition where you can feel left behind, but are very much in the same boat as most people, unless they happen to have shares in those great gainers. Hopefully some of the good fortune of those that have been carrying the markets will diffuse a little bit to the rest of the market and carry it along for the ride higher. After a good beginning to earnings season, this morning has brought some disappointing numbers, but no real surprises. There are still lots more earnings reports to come and for the moment not too much economic news. Neither is there international events on the immediate horizon to hijack our attention. While earnings will continue to come in at a strong pace for the next week or so the re-strengthening of the US DOllar may again begin to temper forward guidance, although that hasn’t been the case to this point. While I’d like to see some increase in volatility in order to make option premiums more attractive, at the moment that’s outweighed by a hope that the market does get to follow in the path of some of those recent great NASDAQ gainers and simply move higher. I would trade off opening new positions for the time being for that kind of equilibration and sharing of the wealth.
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