(Bloomberg) — Amid all the celebration of a rousing year-end in stocks, Doug Ramsey has a sobering observation about a situation below the market’s surface.
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Last week, when the S&P 500 closed at a 52-week high, 334 companies trading on the New York Stock Exchange hit a 52-week low, more than double the amount that marked new one-year highs. That’s happened only three other times in history — all of them in December 1999, according to Ramsey, who is chief investment officer for Leuthold Group.
And it’s not just a one-week phenomenon: NYSE new lows now also outnumber new highs on a six-week moving-average basis. The last time that happened as the S&P 500 hit a one-year high was in July 2015, right before a six-month correction that saw the index lose around 14%.
“The Fed had months to taper when the economy was red hot and the stock market tape was very broad and healthy,” Ramsey said. “Now, they are finally poised to do so with the economy cooling off a bit and stock market internals looking weaker than an at time during the entire rally from the pandemic lows.”
The Federal Reserve announced earlier this month that it would speed up its withdrawal of economic stimulus, whipping up volatility as investors fretted over the central bank’s policy path as well as the rapidly spreading new coronavirus variant. But strong corporate earnings and some positive Covid-19 news have helped propel stocks higher, with the S&P 500 on Monday notching its 69th all-time high of the year.
Few things stir agita for traders like comparisons to 1999 crash times. But Ramsey says that his analysis doesn’t mean a correction is imminent. The smoothed-out six-week moving-average condition happened several times throughout 1999 up until March 24, 2000, when it “proved to be the final nail in the coffin.”
“The trouble is these warnings can persist for several months before the blue chips finally take a hit,” he said.
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