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The market continues to experience volatility around the new record high. Again, this is to be expected as this is a very psychologically important level so we shouldn’t expect the market to blow through this and never look back. There is still a lot of background “noise” in the markets. Last week’s jobs numbers were disappointing, we have had some weaker economic numbers, Cyprus, etc. None of this looks like it can change the fact that money has nowhere else to go but stocks at this point, but the economic numbers bear watching. If the economy stalls then all bets are off for stocks.
More troubling right now is the divergence we are seeing between large stocks vs. small and mid cap stocks. Below is the performance of ETFs that track the S&P 500 along with ETFs that track small and mid cap stock indices. We are only 10 days into the month and this could always reverse but the divergence at this point is striking. In the beginning or middle of a true rally we would expect “risk on” assets like mid caps and small caps to outperform larger stocks. It is only towards the end of a rally that this relationship would be expected to reverse as investors look to reduce risk in their portfolios. This is something that we will be watching very closely.
Month To Date Return
iShares S&P 500 (IVV)