Whipsaw in flows catches S&P 500
(These are the market notes on today’s action by Mike Santoli, CNBC’s Senior Markets Commentator. See today’s video update from Mike above.) In last Friday’s closing notes here, I offered this idea about the latest bout of market choppiness: “While the China flareup had folks comparing this tape to April’s tariff panic, it’s worth remembering that before April there was February, when crowded positioning in quality/momentum stocks unwound in a messy way even before the market started keying off trade hostilities.” This pretty well characterizes Wednesday’s action, the whipsaw in hot-money flows catching the S & P 500 in a bumpy 0.8% drop. High-momentum, more-volatile, heavily speculative stocks have broken steep uptrends and are spilling lower, even as quality, low-beta and value stocks hang in just fine (down 0.5% or less on the day). The broad backdrop: The 2.7% air pocket in the S & P 500 a week ago Friday represented a crack in the lock-tight rotational ascent and has never been fully recouped, though the index got very close to the former highs Tuesday. Bitcoin has remained groggy since its smackdown 12 days ago, gold is $300 off its peak in two days, the Russell 2000 (overloaded with unprofitable meme-type stocks among its largest components), is off 4% in two days and back below its late-2021 peak. If there’s an upbeat take on all this, it’s that momentum strategies are simply giving back a portion of their massive outperformance since the April low, as this chart of the MTUM ETF vs. S & P 500 shows. To the extent that this is merely a jagged repositioning by institutions and a typical comeuppance for the latecomers who chased the spiciest stocks, it’s fine and holds no real macro implications. But just as low index volatility engenders higher equity allocations, a burst in unsettled index action can push players to the sidelines. The handful of absurd short-squeeze stampedes in vintage meme stocks ( Beyond Meat , 1-800-FLOWERS ) just introduces erratic flow. The aggressive selling in Netflix after noisy but ultimately healthy results is a reminder that big growth stocks face a high bar to clear, and recent quarters have seen plenty of “sell-the-news” responses to earnings. Netflix got up to a 40-times forward P/E before it reported, a level it’s spent very little time above in recent years. Yet there’s been enough rotation into the likes of Microsoft , Alphabet , Walmart and selected industrials to contain the index damage. And we are one blowout report or raised capex commitment away from money running back toward the standard AI-levered plays. Overall market breadth is not particularly weak, banks are outperforming. Treasury yields are quite subdued heading into Friday’s delayed CPI report, with markets still showing no obvious stress over the lack of official government data to this point.
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