Risk-on Trade Hits A Speed Bump

Breadth remains extremely narrow on many days when overall markets are up.

Key Takeaways

• Another Tech Deal Among Key Firms: In a sign of the times, the $38 billion Amazon deal with OpenAI to buy Nvidia chips saw the former’s share price zoom ahead by +4.0% yesterday (Nvidia popped +2.2%). The wave of tied business sales relationships looks a lot like the old “chaebol”-style corporate relationships in Korea or Japan in the old days. Strip out Amazon and Nvidia, and the Dow tumbled -313 points yesterday — 22 of the 30 stocks closed in the red.

• Breadth Remains a Major Anomaly: Another market anomaly was that on a day when the S&P 500 eked out a +0.2% gain, only 180 of the 500 stocks closed in the green. Eight of the major equity sectors were either flat or down as the bifurcation expands.

• Wave of Bond Downgrades for Corporate Credit: Roughly $42 billion of corporate bonds have been downgraded this year (Barclays data) from the IG tranche to HY (“fallen angels”). The share of the IG market now possessing a “negative outlook” by the rating agencies just hit a ten-year high; ditto for the BBB/BBB- tranche. Jamie Dimon was right — the number of cockroaches is on the rise.