For a while on Thursday, it looked like small cap stocks — as seen in the Russell 2000 fund (IWM) — might produce some relative strength and start to close the performance gap with the big-cap technology names. Breadth was three-to-one positive, and speculative action began to improve, but the Nasdaq 100/Invesco fund (QQQ) managed to win the day again with a gain of 1.17%.
The good news is that the action broadened, but there really was no slowing in the lopsided outperformance by a small group of big caps. Everyone is very aware of what is happening, but no one seems to have a clue where this is headed.
Some of the action on Thursday is due to inflows that tend to occur on the first day of a new month. Automatic deposits to 401(k) and other plans are put to work immediately, which is one of the reasons that there is so much buying in stocks that are obviously technically extended.
With the debt ceiling issue now close to resolution, the main focus will be on economic news and the Fed. The May jobs report is due tomorrow, and after a strong ADP report on Thursday, there is a good probability it will be strong. However, the Fed is signaling that they are ready to pause to a strong report may not be a big negative from an inflationary standpoint.
This remains a very tough market to navigate as big caps are showing few signs of slowing, while most of the rest of the market has some flashes of strength but can’t seem to sustain much momentum. The last time small caps acted this well, they quickly reversed the next day.
Have a good evening. I’ll see you tomorrow.