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Bad breadth continues

Three weeks of the year have gone by and the market continues with the same dynamics that ended last year. Growth indices are almost 400 bps above Value ones and the #magnificent7 stocks have pushed the S&P500 to all time highs, while the Russell 2000 is still in bear market territory, since it trades 20% below the prior all time high. Buybacks are also playing a big role in this market momentum as they are more prominent in large caps than smaller companies. This big difference between both indices has not happened before and it shows how big market concentration is. Some of these companies are priced to perfection, but continue to deliver with a mix of great storytelling, earnings expectations massaging, buybacks and financial engineering. This market breadth is a bad omen for future market returns, as these seven stocks will suffer the gravity pull at some point.

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