Stock Market Sectors Failing To Hit New Highs

If you have Apple AAPL and Microsoft MSFT in your index, you hit new highs recently. If you do not have Apple and Microsoft as index components, you probably did not hit new highs. A case could be made that the big institutional investors that move markets are selling other stocks in order to buy more Apple and Microsoft.

The S&P 500 and the NASDAQ-100 keep heading higher thanks in large part to those 2 big names. In other widely followed measures of sectors — materials, industrials, biotech, energy, transportation and those that reflect the movement of small capitalization stocks — there are no new highs without those major components.

It’s a little unusual to see these groups fall behind while the most watched headline names keep blasting upward. Here are the price charts showing the diverging patterns.

First, the S&P 500 daily:

The uptrend is obvious and so is the new all-time high achieved only yesterday. It’s been a good year for money managers who’ve kept up by making sure those big name, big-tech stocks are in the portfolio.

Second, the NASDAQ-100 daily price chart:

Similar to the S&P 500 with the clear uptrend and the new all-time high just a few days ago. It’s been a good summer for the price of tech and social media giants included in the NASDAQ-100.

Here’s the Materials Select Sector NYSE Arca Index daily price chart:

This group of materials stocks peaked in early to mid-May and then sold off into July. The index has rallied since then but so far it’s failed to reach the May all time highs. Note how different this is from the S&P 500 and the NASDAQ-100 price charts.

Here’s the SPDR S&P Biotech ETF daily price chart:

Remember when biotech stocks used to be hot? It’s been a while. As a matter of fact, this biotech index peaked out all the way back in February and hasn’t even come close to recovering. When you hear or read about “new all time highs” in the stock market, make sure to check out this price chart when you do the research.

Here’s the iShares Russell 2000 ETF daily price chart:

This shows how the small capitalization stocks in the Russell 2000 index are underperforming the S&P 500 and the NASDAQ-100. The all time high came in mid-March. The small caps tried to get there again in June and July but couldn’t quite make it. You can see that selling is taking over from buying in this part of the market.

If you’re the portfolio manager of a mutual fund and you don’t keep buying Apple and Microsoft then you may be falling behind the fund managers who are buying. Your job is on the line. The easiest way to come up with money to buy them is to sell the lesser known, non-tech names that fail to attract CNBC attention.

Is this what’s happening? Whatever the reasons are, it’s clear that significant portions of the stock market are negatively diverging from the major indices.

Not investment advice. Do your own research and always consult with a registered investment advisor before making any decisions.