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Tale of Two Markets

For the first half of the year, it has been basically a tale of two markets the NASDAQ Composite Index and everyone else. The technology-based index continues to widen its lead over its US equity peers. NASDAQ Composite (COMP) has gained +10.63% year-to-date as compared to S&P 500 Index (SPX -4.84% YTD), Dow Jones Industrial Average (INDU -10.59%), S&P 400 Mid-cap Index (MID -13.65%), NYSE Composite Index (NYA – 15.06%), and S&P 600 Small-cap Index (SML -18.51%).


Although all major US indexes have staged a strong recovery from their respective March 2020 bottoms it appears investors have favored a narrowed list of predominately growth-related names within the Technology, Healthcare, Communication Services, and select Consumer Discretionary sectors. The last time NASDAQ has shown such a wide discrepancy in performances against its peers occurred during Feb/Mar 2000 or just ahead of the Tech/Telecom dot.com bubble burst.


So, can NASDAQ Composite continue with its outperformance during the second half of the year, and into next year?


Attached below is the ratio analysis of COMP against key US market indexes including SPX, INDU, NYA, MID, and SML. The objective is twofold to quantify the COMPQ outperformance against its US equity market peers, and most importantly, to determine the sustainability of this outperformance cycle.


The ratio analysis chart of COMP/SPX is interesting as it shows the historical performance cycles of COMP and SPX over the past 42-years. In hindsight, a major breakout during Dec 1998 led to a significant rally in COMP/SPX to an extreme high of 3.44 (Feb/Mar 2000). 20 years later it is interesting to note a major breakout also occurred during Feb 2020 as COMPQ/SPX (3.24) surpassed the top of its 2006 uptrend channel. Does this imply the outperformance cycle can lead to a retest the Feb/Mar 2000 high (3.44)? What happens if COMP/SPX exceeds the 3.44 high?



Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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