GROWTH STOCKS ARE PULLING THE MARKET LOWER
S&P 500 NEARING TEST OF MAY LOW ... The new week is starting off much like the old week ended -- with more selling. As was suggested on Friday, the S&P 500 Large Cap Index is nearing an important test of its May low. Looking beneath the surface, however, it's useful to see where most of the selling is coming from. That's because most of the selling is coming from growth stocks. Although value stocks are also falling, they're holding up better. That's true of large, midsize, and small cap stock categories. As the following charts show, the chart patterns of growth stocks look even worse than the benchmark indexes. That's not a good sign.
Chart 1
S&P LARGE CAPS AT NEW YEARLY LOW... In the large cap universe, the S&P Growth Index has already fallen to a new low for the year. That's a sure sign that investors have turned bearish on the market. By contrast, the S&P Large Cap Value Index (Chart 3) is breaking its 200-day average, but is trading well above its yearly low.
Chart 2
Chart 3
MIDCAP GROWTH STOCKS TESTING 2004 LOW... The same disparity between growth and value is seen among midcaps. The S&P Midcap Growth Index is threatening its May low -- while the Midcap Value Index is well above the same low. It is noteworthy, however, that midcap value stocks are breaking their 200-day moving average today.
Chart 4
Chart 5
SMALL GROWTH STOCKS UNDERPERFORM VALUE... The same pattern of growth underperformance is seen in small caps. The Russell 2000 Growth Index has fallen to a new six month low -- while the Russell 2000 Value Index is just now breaking its 200-day moving average. There are lots of bad signs here. The fact that growth is leading the market lower shows lack of confidence. The fact that value stocks, which had been holding up better, are breaking their 200-day averages isn't good either. Small cap stocks are now falling harder than large caps. As a general statement, the worst category recently has been small growth; the strongest has been large value. Unfortunately, however, all of them are falling at the moment. [Please see John's Latest Performance Chart for a graphic look at the relative performance over the last month of the six market categories described above].
Chart 6
Chart 7
