Stocks finished Thursday lower, with small caps taking the biggest hit. There has been plenty of commentary on social media suggesting that small-cap outperformance is evidence of broadening market breadth. Apparently, very few have actually bothered to look at the holdings, let alone the top 10 holdings. When Bloom Energy (BE) is the largest holding, alongside companies tied to AI infrastructure, data centers, power demand, networking, and electrification themes, it becomes pretty clear this is still the same trade driving much of the market higher.
If you look more closely, many of these companies are the very same AI-related trades currently driving Semis and large-cap Tech more broadly. By the second page of holdings, there is even more Information Technology exposure.
The point is that claiming small caps are proof of broadening breadth, without understanding what is actually in the basket, misses the bigger picture. In many respects, it is still the same thematic trade expressed through a different part of the market. Anyway, IWM printed a bearish engulfing candle today, with the ETF falling 1.6%.
Much of it was probably driven by the roughly 10% decline in Bloom Energy — clearly a completely “unrelated-to-AI” stock — which had rallied more than 100% since March 30.
If you are a Japanese official hoping USD/JPY would respond to intervention, you are not feeling very good these days. Despite what appear to have been two rounds of intervention, USD/JPY has still been unable to move sustainably below 155. At this point, you have to wonder whether they attempt another intervention to defend that level. If not, it increasingly feels like USD/JPY could be headed significantly higher.
Finally, I almost forgot there was a jobs report Friday. Apparently, the market did too, because the 1-day VIX closed at 12.4. That does not exactly look like a great setup for a volatility crush from here.
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