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Confidence is something the business world feasts on.
A confident CEO sounds better on an earnings call than a shaky CEO who bumbles through an analyst question, and a confident economist can go a long way in calming nerves that may linger after a key piece of economic data is released.
Investors search for confidence daily. Sometimes they find it. Sometimes, they don’t. Sometimes what looks like confidence is just misguided bravado, which can end badly for investors.
And while seeing the S&P 500 (^GSPC) trading near record highs despite elevated gas prices and rising Treasury yields is confidence-inducing, there are a lot of red flags lurking underneath the surface in markets right now.
Here are two that caught our attention from Mike Wilson and the strategy team at Morgan Stanley.
Market breadth is weak
The share of S&P 500 stocks trading above their 200-day moving average rose to roughly 75% over the summer before falling to 49% today.
“Importantly, breadth was still expanding as crude and yields moved higher,” Wilson said. “The sharper deterioration came after Jackson Hole. To us, that suggests the recent narrowing is more about the additional tightening being discounted.”
Large caps are getting pounded
About 51% of the stocks in the Russell 3000 (^RUA) have seen at least a 20% pullback since June. That is technically bear market territory.
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the Sozzi Unleashed morning show, the ‘Power Players With Brian Sozzi’ podcast and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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