Markets this morning: uniformly higher...is it a head-fake?

Good morning, this is Jeffrey Cohen.

Five Fast Facts:
1. Our quantitative model is less positive, less aggressive, and less attractive for holding stocks. The best, most controlled, lowest risk and highest expected return stocks just blew out their correlation. It was like the 'players club' that holds these top stocks (think ARKK) blinked.
This reduced the edge, or alpha on our optimized long portfolio from 28 'ticks' to 18 'ticks.'  This was not due to big picture changes. Expected returns, price volatility, and all the other metrics are relatively unchanged, yet the edge is lower. So, the best stocks are less good.

2. The 10-year US Treasury Note yield is up significantly, and although it is down three basis points this morning, it is still up significantly, at an 'investing cycle' high. Short rates have not changed.

3. Pre-market is broadly higher. We track portfolios. We create them, liquidate them, and recreate new ones. Today, pre-market, growth is up, bonds and banks are up, steel, mining and autos are up, energy is up. It seems universal, with only a handful of stocks lower in pre-market.

4. Our Chicago Quantum Net Score picks are similar to the ones we picked yesterday, but there are some smaller portfolios reaching the top of the list. Best portfolios of 17 to 18 ticks of alpha have between two and eight stocks. So, the best are in the same place, but there is less confidence.

5. Large cap stocks have been down for days. 

Winsorized daily returns for $10B+ market cap stocks.

Big circles hanging lower on the chart. In other words, large cap stocks falling today. We also see it more simply.

Source and Thank you: @FINVIZ_com and @KoyfinCharts

Is there a stealth sell-off? pic.twitter.com/a7llWaj381

— Jeff Cohen @ US Adv. Computing Infrastructure Inc. (@chicago_quantum) September 20, 2023

Yesterday, and for a bit of time, large cap stocks under-performed. Will it shift today or is this 'exit liquidity?'

When markets are weak, what do you sell first?
A: Liquid stocks
Why?
A: Because there is a bid
What about illiquid stocks?
A: May not get anything

— Jeff Cohen @ US Adv. Computing Infrastructure Inc. (@chicago_quantum) September 22, 2023

This is what we are thinking about. The largest capitalization stocks are doing the worst this week. Growth and innovation are down. Advertising is down. Confidence is large caps has slipped. Even Eli Lilly is down.

The best stocks this week? The low growth, slow growth stocks like health insurance are doing well. In a tough market, investors cycle into stable, safe companies that are insensitive to economic changes. We noticed that United Healthcare is up most days.