The momo (momentum) crowd in the stock market has it all figured out. “Good” news is “great” news. “Bad” news is “good” news. There is nothing that cannot be twisted into a reason to buy.
Is Bernie Sanders’ win in New Hampshire a good thing for the stock market? Wall Street says “yes” because this makes Donald Trump stronger. Is coronavirus a good thing? Wall Street says “yes” because central banks will print more money. Why not buy on the news of the coronavirus and then buy again on the news of the coronavirus’ spread slowing? No kidding, the crowd is now buying on the news of the coronavirus slowing, even though the stock market is higher now than when the coronavirus first emerged.
Why not buy on bad economic data, as it will simply make central banks inject more liquidity? This is exactly what is happening.
In the middle of all this so-called “good” news, investors ought to note that the generals are rushing to the front line, but the troops aren’t following. Does anyone see anything wrong with this strategy?
Let’s explore with the help of a chart.
Chart
Please click here for a chart that compares three ETFs and four stocks.
Note the following:
• The Dow Jones Industrial Average DJIA, +0.73% is a price-weighted index. Dow Jones Industrial Average ETF DIA is performing in line with equal-weighted S&P 500 ETF RSP.
• The S&P 500 Index SPX is a cap-weighted index. Mega-cap tech stocks such as Facebook FB, Amazon AMZN and Apple AAPL carry a heavy weighting in this index.
• The chart shows that S&P 500 ETF SPY is significantly outperforming the equal-weighted S&P 500 ETF.
• Microsoft MSFT has left even Apple in the dust, producing more than twice the return of Apple.
• After lagging last year, Amazon’s stock has taken off like a rocket and is now only second to Microsoft in performance.
• Google holding company Alphabet GOOG, GOOGL reported less-than-expected earnings. What did Alphabet’s stock do? The dip was aggressively bought and now Alphabet is outperforming Apple.
• Apple derives significant sales from China. Its stores have been shut down in China. Should this concern investors? No, because the Chinese love iPhones and will buy when the stores open — no reason not to be bullish on Apple’s stock….Read more at MarketWatch.
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