Secular behavior isn’t driving the sustained momentum in our markets. Just about 100 stocks are keeping this market up. The bulk of scrips trading in our market is way below their pre-COVID-19 highs.
Clearly, the market indices don’t tell the real story. Narrow momentum drives this. This momentum is concentrated in a few stocks and sectors. Performing stocks are trading at a significant premium over the rest of the market.
The gap between value stocks and growth stocks have reached historic highs. Yet, this market is still chasing growth. The polarity seems like it is here to stay. Investors are close to accepting this reality as the new normal and are learning to live with it. The setting is perfect for the market to further dump value and somehow latch onto the already expensive growth stock universe.
Institutional investors seem more than willing to be trend huggers. Their underperformance is hurting their egos and careers very badly. Sticking to their investment strategy under trying circumstances can be very humiliating and stressful. This is the reason why they are buckling in and choosing to hug the trend.
This means that the market contrarians are slowly converting one by one into consensus soldiers. The setting is almost perfect for violent disruption. The coming months will see how this plays out.