84% of the S&P 500 has already corrected 10% or more.
It gets worse. 59% of the S&P 500 is in bear market territory, down 20% or more. Listen to me, almost 60% of the index is in a bear market, and the index itself is sitting near an all-time high.
So who’s holding it up?
A handful of stocks, maybe seven to 10 of them, are holding the entire thing together. They’re big enough to do it, and they’ll keep doing it as long as they stay up.
How Many Walmarts Fit Inside One Nvidia
Everybody agrees Walmart is a big company. Call it a $900 billion company.
How many Walmarts would fit into the market value of one Nvidia? About six, and that’s a stupid number.
So the market can rotate all it wants into the stocks that got left behind. You would need six other companies the size of Walmart to make up for one Nvidia, and they’re not there. Costco’s been ripping lately, and Costco is only half the size of Walmart.
Why A Rally In McDonald’s Should Scare You
This morning, chipmakers got hit. Intel, AMD and Micron were down 2% or more, and the money ran straight into consumer staples (XLP), the fund that holds companies selling everyday basics like food and toothpaste. Utilities caught a bid.
Even McDonald’s flinched to the upside, and nobody has wanted to touch McDonald’s since February.
You look at that and you should think to yourself, uh-oh. When the market starts buying a sector that’s been treated like the bubonic plague, it’s trying to save this bastard. That’s exactly what you would expect right before crap gets real.
I’m short XLP, and I’ll be honest, the timing isn’t perfect. You stand in the way of a freight train. But if XLP keeps rallying, I don’t believe that’s going to look good for technology.
The 2 Stocks That Could Drag This Whole Market Down
Nvidia has had three days of selling. If one more giant joins it, say Google, the rotation stops being able to keep up and the S&P gets pulled down with them.
A handful of stocks are holding up a market where 60% of the stocks are in a bear market. You should be afraid. I think it’s okay to be afraid.
Financials start reporting tomorrow with JPMorgan, and this is going to be a bigger week than I think people expect.
To your success,
Don Kaufman
