Key Takeaway
The S&P 500 index remains in an uptrend, although less stocks are participating on the upside. This is seen in the percent of stocks trading above their 200-day moving average, which declined about 7% over the past two weeks. Declining market breadth is partly due to the recent pullback in small-cap stocks, although we expect breakouts to hold given seasonal strength for equities this quarter.
Our indicators continue to suggest moderate risk-on conditions, which means market upside could narrow into December. In simple terms, fewer stocks will hold up the overall index. Therefore, over the short-term, we remain positioned in stocks that are outperforming relative to the overall market, particularly in cyclical sectors such as consumer discretionary, materials, and financials.
Percent of stocks above their 200-day moving average
Source: Cannon Advisors, Stockcharts.com data
Further, large-cap growth stocks are starting to outperform value stocks, while small-cap growth stocks continue to lag – another sign of narrowing upside for the market.
Growth/value divergence
Source: Cannon Advisors, TradingView data