Small Caps Shine As Financial Conditions Tighten And VIX Drops

This is an abridged version of our Daily Report.

Small caps trying to drag us higher

The small-cap Russell 2000 is within 1% of an all-time high, while the S&P 500 is still more than 5% below.

That’s usually taken as a universally good sign for stocks in general. It hasn’t been that easy, especially for the Russell, which was negative a year later every time it triggered

It was good while it lasted

Financial conditions were at a 28-year best in January just as stocks were peaking. Since then, they have tightened by 1%, suggesting a reversal to a more restrictive trend. That hasn’t been a terrible sign for stocks, though defensive sectors did better going forward.

Welcome back, volatility sellers

The VIX has dropped back to a below-average level for the first time in months. Other times it did so, stocks struggled a bit in the shorter-term, while the VIX rebounded almost every time .

Concern for high-yield

The Cumulative Advance/Decline Line for high-yield bonds just sunk to its lowest level since July 2016. That suggests there has been a persistent trend of fewer and fewer bonds supporting funds like HYG or JNK.

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The post titled Small Caps Shine As Financial Conditions Tighten And VIX Drops was originally published as on on 2018-05-10.

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