Every long-term investor will tell you diversity is the name of the game when it comes to your portfolio, but what about when it comes to taking the market's temperature?
The S&P 500 outperformed most expectations in the first half of 2023, largely led by soaring tech stocks including Nvidia (NVDA) -), Amazon (AMZN) -) and Apple (AAPL) -). However, a look under the hood signals a bit of a different story could be emerging in the second half of the year, according to market technician Bob Lang.
In this sneak peek from the Action Alerts PLUS investing club, Lang explained how a close look at the Russell 2000 signals some market weakness ahead.
FULL VIDEO TRANSCRIPT BELOW:
BOB LANG: Certainly, the most obvious thing that stuck out to me, J.D., was the outperformance of the NASDAQ, which had a miserable year in 2022. It gained nearly most of it back in 2023 and in just the first six months. But what also stood out to me is this, is that the Russell 2000 and the Dow Industrials leading into the start of June were either flat or slightly negative. So listen, they had a good month of June.
But I think that leading into that month, the first half of the year was not a real strong performance for either of those two indices. The S&P 500 actually had a strong first half of the year, of course led by a lot of the bigger names that are in the NASDAQ, like Apple and Amazon and Nvidia and some of these other names.
So I do think that we have to pay attention to the small caps. Small caps are a big driver of performance in the stock market. They often tend to lead up or down. When the NASDAQ started to outperform this year, we didn't see much of a move in the Russell 2000. And that divergence is somewhat troubling.
And last year, when the Russell 2000 started to move down first, it led all the other indices down in 2022. It first started with the Russell and then led to the Dow and led to the S&P 500. Then finally the NASDAQ followed after that. So I think that that's something we have to really pay attention to. If the Russell 2000 continues to underperform, we may be talking about lower prices in the second half of 2023.
