Is the Stock Market Sending a Warning?

Merryn Somerset Webb (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News. Welcome to the Merryn Talks Money Market Wrap, where we talk about the biggest moves in markets this week and what is driving them. I'm Merryn Somerset Webb, UK Money Editor-at-Large.

John Stavick (0:26)

And I'm John Stavick, Senior Reporter at Bloomberg and author of the Money Distilled Newsletter.

Merryn Somerset Webb (0:31)

Okay, John, there's a lot going on. There's always a lot going on these days. But listen, one of the things that I want to talk about, and I'm not sure that you agree with me, this is a big deal, but I do think it is a big deal, is about breadth in the market. So quite a few people have written about this week, including our very own John Authors, who points out that on Tuesday, NASDAQ went up quite a lot, right? But of that rise, more than half of the rise was down to four companies, all four chip making companies, basically Micron, SanDisk, give them all to Micron, Devices and NVIDIA.

So everything else is basically irrelevant to this huge concentration. Now we know that isn't new, right? But it just seems to be getting more and more intense, that when the market moves, it's just being dragged along by a couple of big companies, and everything else is either knocking around at neutral or going down a little bit, or really just not doing very much. And that's not normal.

It doesn't happen that often. He looks at it and he says that in terms of this kind of really extended period of outperformance by a couple of big companies, you've got to go back to the late 1990s to see. We all know what happened then, right? The narrowing of performance. And the more you look at it, the worse it gets. And he actually, John, points out a tweet that I was looking at the other day, which first made me think, oh, I'm a bit worried about this, which was from one of the traders on X. And so there are two days in history like today when the S&P 500 rallies, at least 1% to 1% of a new high and more of the stocks fell to new lows than highs July 23rd, 1929 and December 21st, 1999 So both before really, really, really epic, epic market fails, right? Now, as John says, and I agree, it's a very small sample sale, doesn't mean anything, but it doesn't feel good, does it? Having the market led by companies like this, people constantly think, oh, it's a new high, it's a new high, it's a new high, everything's fine, but underneath everything kind of isn't.

John Stavick (2:28)

Fundamentally, I agree, and obviously I agree that the market is very, very concentrated, it's very pricey, and like any measure that you pick, really will show that the S&P is expensive and the NASDAQ's expensive. So I actually don't disagree at all with the fundamental. Well, the only issue we've breaded is that people talk about it a lot, and quite often it then just goes on to widen out.

So whenever you get down to talking about these things, which are almost kind of timing devices, and that's all because that's sort of a question like, does it actually tell us that in three months' time, the market's going to start crashing or whatever? I mean, to be fair, I've already got a marker, I've produced a little graph in my Bloomberg terminal to remind me that The Economist had NVIDIA on the cover a couple of weeks ago, and so I've just got a wee note of that with the NVIDIA share price, because that's my kind of chosen timing indicator.

Merryn Somerset Webb (3:26)

Glass houses, John, glass houses.

John Stavick (3:29)

Oh no, no, no, this is not a criticism. It's because The Economist is so widely read and so widely respected that it works. It's not because it's a bad title, it's because everyone reads it.

So yeah, I'm sort of like going crash alert for about at least six months from the publication date, which was about September earlier this month. So yeah, this kind of adds to that feeling. It's just, I don't know, I've heard breath is narrow a lot.

Merryn Somerset Webb (3:54)

Okay, I'll give you that. But when breath is narrow and when there is so many things to worry about with the companies that are leading it.

John Stavick (4:04)

Yeah.

Merryn Somerset Webb (4:04)

Right, and you've written about this week yourself, right?

John Stavick (4:07)

I've written about it this week, yes.

Merryn Somerset Webb (4:09)

Yeah. And what did you say this week? What is this? A new worry, John, or are you just piling on top of our old worries about too much capex and not enough revenue?