Market commentators have been basing predictions of doom for the US stock market lately based on the major averages being levitated by just a few megacap stocks. While this has been the case for much of the recent past, it has not been in the past few days. At this writing, the S&P fund VOO is trading down on the session, while the small cap extended market fund VFX – basically the US market less the S&P – is up. It’s strongly outperformed over at least the past five days.
Investors may believe that smaller domestic companies offer less exposure than big international names to the potential impact of coronavirus. That’s reasonable, but it doesn’t negate the negating of the narrowness argument. There are plenty of arguments for worrying about US stock prices – valuations being front and center – as we have pointed out before, and continues to be an ill omen for the long term return prospects for US stocks, but bad breadth has at least for now been taken off the table.