S&P 500 Equally Weighted Index continues to underperform its Capitalization Weighted counterpart, a prolonged trend last seen prior to the 2008/09 meltdown in equity markets.

Stock Market Outlook for October 29, 2019

S&P 500 Equally Weighted Index continues to underperform its Capitalization Weighted counterpart, a prolonged trend last seen prior to the 2008/09 meltdown in equity markets.

Real Time Economic Calendar provided by Investing.com.

*** Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities. As always, the use of technical and fundamental analysis is encouraged in order to fine tune entry and exit points to average seasonal trends.

Stocks Entering Period of Seasonal Strength Today:

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Novanta Inc. (NASD:NOVT) Seasonal Chart

Cooper Tire & Rubber Co. (NYSE:CTB) Seasonal Chart

Coro Mining Corp. (TSE:COP.TO) Seasonal Chart

Cabot Corp. (NYSE:CBT) Seasonal Chart

Dover Motorsports, Inc. (NYSE:DVD) Seasonal Chart

Canadian General Investments, Ltd. (TSE:CGI.TO) Seasonal Chart

Analog Devices, Inc. (NASD:ADI) Seasonal Chart

Fluidigm Corp. (NASD:FLDM) Seasonal Chart

WPP Group PLC (NYSE:WPP) Seasonal Chart

Copart, Inc. (NASD:CPRT) Seasonal Chart

Honeywell Intl (NYSE:HON) Seasonal Chart

The Markets

Markets advanced to open the week as stocks in the US charted new all-time highs. The S&P 500 Index added just over half of one percent to cross above the previous hurdle at 3027.98, ending the day at 3039.42. It is at this point that we want to apply a three-day notice period to confirm that the breakout is in fact real. Once confirmed, the breakout from the 200-point summer range projects a calculated upside target of approximately 3225. Major moving averages are all pointing higher, suggesting positive trends across multiple timescales.

Encouraging is the continued adoption of cyclical bets as the defensive trade unwinds. The consumer staples sector closed down on the day by two-tenths of a percent, the utilities sector was lower by around 1.4%, and REITs were down by over one percent. On the flipside, technology was higher by almost 1.3% and communication services was up by over nine-tenths of one percent. The unwind of the crowded defensive bet presents plenty of fuel for the ongoing advance of broad market benchmarks, particularly in previous unloved cyclical market segments.

While the market rotates to more risk-on segments, momentum stocks have not been the beneficiary of this switch. The iShares Momentum Factor ETF (MTUM) has significantly underperformed the market over the past couple of months, trading lower as the broader market trades higher. FANG stocks (Facebook, Amazon, Netflix, and Google) are showing similar. Having peaked in the month of July, these stocks are now well off of the previous peak. There is not anything necessarily wrong with this as long as the breadth of the market remains upbeat and not reliant on the performance of a select group of previous market darlings.

The S&P 500 Equally Weighted Index provides us with some clue as to the breadth of the market. With the gain on Monday’s session of three-tenths of one percent, the equally weighted benchmark remains below resistance, having yet to break out. The S&P 500 Equally Weighted benchmark has been underperforming its capitalization weighted benchmark for the past few years as investors become much more selective with their trades. This is clearly not a “buy-anything market,” as was the case between 2009 and 2015 when the equally weighted index outperformed the capitalization weighted counterpart. This can be indicative of a late-stage market. We’ll monitor the situation accordingly.