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This morning looks disappointing for those who are convinced that the recent rally would continue unabated, but a deeper look shows a more mixed market than the declines in key indices might indicate. Indeed, while the Nasdaq 100 (NDX) is down more than -1% and the S&P 500 (SPX) is down nearly a full percentage point, the Russell 2000 (RTY) is slightly higher, and advances lead declines.This is a demonstration of what occurs when rotation affects the stocks that dominate key indexes.

There are plenty of signs that risk-taking is not taking a total breather today – it’s just moved beyond the usual cadre of market leaders.Indeed, among the top 10 stocks in NDX, all are lower except #10 Costco (COST), the lone non-tech stock among the group.Considering that those 9 stocks (8 companies, when we consider both classes of Alphabet (GOOGL, GOOG)) make up about 42% of NDX and about 37% of SPX, it is nigh impossible for those market benchmarks to withstand coordinated declines in mega-cap tech stocks.

Interestingly, around 11:30 ET, 38 more stocks in SPX were rising than falling; NYSE advances led declines by over 400; and even Nasdaq showed 70 more advancing than declining stocks.Stock traders are not uniformly negative, even if they are clearly not fans of technology – especially software – today.Around noon ET today, SPX was down almost exactly -1%, but 5 of its 11 sectors were higher.The problem once again is that the losing sectors are more heavily weighted than the winners. 

Energy was the best performer, up more than 2% thanks to higher crude oil prices, while Consumer Staples, Utilities, Real Estate, and Healthcare also advanced.Utilities and Real Estate were benefitting from lower Treasury yields.Unfortunately, Information Technology was down nearly -2% with Consumer Discretionary nearly matching that loss.Financials were about -1% lower, while Communications Services, Industrials, and Materials also faded. 

About the financial sector – once again we had three SPX companies report today.All three are major banks – Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) – and all sank despite beating consensus EPS estimates.Again, it is WAY too early to draw conclusions about the entirety of earnings season after two days and 1.2% of SPX stocks reporting, but it would be helpful if stocks could show a propensity to rally after earnings.Otherwise, we get a quarter when the vast majority of stocks beat published expectations – it’s typical for 75% or more to do so in any given quarter – but markets fail to respond positively, nonetheless.The higher the bar, the tougher it is to jump over.

Finally, even with tech showing weakness, speculators have found other avenues for their activity.Silver is up over 4%, even if gold is only slightly higher, and most cryptocurrencies are also moving up.Bitcoin is up nearly 4% to more than $97,000 after flirting with $90,000 just a few days ago, and Ethereum is up about 5%.Both have been moving higher after purchases by key holders, with Strategy (MSTR) buying almost $1.25 billion worth of bitcoin between January 5^th and 11^th, and BitMine Immersion (BMNR) buying nearly $75 million in the week ending January 5^th.Those investors clearly have huge vested interests in seeing the prices of their key holdings increase, but for now the gains are holding firm.

A day like today tells us that risk-taking is not dead, though it is taking a clear breather in the sectors that have driven performance throughout the bulk of the current bull market.A sustained move that continues today’s pattern has no alternative other than to provide a drag on key market indicators, even if at least some of that money flows into less heavily weighted sectors. Furthermore, if we continue to see stocks fail to rally even after reporting consensus-beating earnings, that too would be a drag on stocks — regardless of sector.We’ll learn more about the latter over the coming weeks.

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