More Beta than Alpha

Issue 38;

• Many stocks are in an uptrend (beta), but fewer are beating the market (alpha).
• Consumer weakness is prevalent.
• The USD market is weak under the surface.

The World Index holds its super-strong ByteTrend Score of 5, a theme that has been consistent since April. Yet even fewer stocks are doing the hard work, and with CAPR highs from Apple and Alphabet, the second- and fourth-largest stocks in the world, respectively, the value of global equities rose by another $1.6 trillion last week to $114 trillion measured by GTI’s universe. Notably, 65% of those gains came from the world’s top ten stocks, including Saudi Aramco.

World Index – Developed Markets – Daily

Breath remains strong, which means plenty of stocks are in blue uptrends and few are in red downtrends.

ByteTrend: Weekly Breadth Signal – Local Currency

Yet, on a relative basis, a declining number of stocks are outperforming, hence our headline - More Beta than Alpha - whereby fewer stocks are beating the market.

Nine of the top ten stocks are in the technology sector, and that is the risk. When tech catches a cold, there will be little to drive global equities, at least at the index level. The positive for the index is that technology remains stable.

The declining number of leading stocks comes from financial services and communications, which means internet consumer stocks. Healthcare is still warming up, and there’s a glimmer of hope in real estate.

CAPR: Global Sectors

The regional CAPR charts demonstrate how emerging markets, Japan, and Europe have ended up in the same place. US equities have lagged the world over the past year, and even then, have been held up by tech. Goldman Sachs created the S&P 500 ex Mag7 Index, which excludes the seven largest tech stocks, and the result is fascinating. Stripping out the gains from big tech, the other 493 stocks in the S&P 500 have lagged the world by a wide margin.

CAPR: Europe, USA, USA ex Mag 7, Emerging Markets, and Japan - Past Year

The world matrix shows Asia overall slightly stronger than last week, and the Americas slightly weaker. Financial services are down again, along with utilities and communications, which are notably weaker. Energy is stronger.

Average ByteTrend Score by Region and Sector Heatmap – CAPR

Focusing on the US, not a single sector is beating the world. This measures all stocks on an equal weight basis, and so the large stocks don’t skew the results.

Looking at the size bias, where the mega-caps still rule, it is notable how weak mid-caps and, by extension, presumably small-caps are.

Only in energy do mid-caps have an advantage over mega-caps.

The trend changes over the past week are shown by country. In an up week for the index, it is surprising that just Finland and China had more bullish moves than bearish. The US came last alongside Malaysia and Hong Kong.

Leading Trends with New Highs

These stocks are trading at the 30-week CAPR highs with a ByteTrend Score of 5. All charts shown are CAPR rebased to 100.

Apple

The new iPhone 17 has seen a particularly strong consumer response, outselling the iPhone 16 models by 14% during its first 10 days, leading Apple back into the Leading Trend category. It has simply tracked the performance of the index since late 2020, which goes against the narrative, and weakened to a score of 1 over the summer. It needed saving, and the iPhone 17 could do it, although the thinner iPhone Air has disappointed.

Alphabet

The other Mag 7 stock in the Leading Trend category, Alphabet, is where all US strength resides. Elsewhere, America shows up as weak across most sectors. Google’s autonomous vehicle subsidiary, Waymo, is leading the AV rollout, with plans to launch in New York this year and in London next. This is coming sooner than you think, and Alphabet is a leading player. As for AI, it announced a major chip deal with Anthropic. 

Lam Research

AI-driven demand has fuelled strong growth at Lam, hence the doubling of the stock in CAPR terms since the April lows. Their innovations in deposition and etch tools are now central to enabling next-gen semiconductor manufacturing at customers like TSMC, Intel, and Samsung. However, over 40% of its revenues come from China, so although the news is positive today, continued tariff shocks could still hurt it.

There are 60 additional leading trends with new highs in the GTI universe. The list is mainly tech and industrial, but some energy stocks made it. Finance is slimming, and gold is absent.

Emerging Trends

These stocks are trading at the 30-week CAPR highs with a ByteTrend Score of less than 5. They don’t have to be in an uptrend, just emerging. All charts shown are CAPR rebased to 100.