BTIG analysts warn that "significant divergences still remain heading into 2H" in a recent note.
The investment firm highlights the underperformance of small-cap stocks and lingering questions about interest rates.
The "breadth expansion" of late 2023, characterized by strong performance across sectors, failed to materialize despite easing inflation and lower interest rates, they note.
BTIG points to the equal-weight S&P 500 (SPW), which tracks all S&P 500 companies with equal weight, significantly underperforming the broader S&P 500 (SPX) in the first half of 2024. This is said to represent one of the worst such performances on record.
The lackluster performance of small-cap stocks is a particular concern for BTIG. The analysts note that if this trend continues, small-caps could signal a broader market downturn rather than a rotation opportunity.
While small-cap growth stocks (IWO) are currently showing more promise than small-cap value stocks, BTIG believes the overall performance needs to improve for a clear signal.
Interest rates pose another lingering question. Bond yields remain stuck in a range, impacted by conflicting forces. Softening economic data puts downward pressure on yields, while fiscal concerns and persistent inflation keep them from falling further.
Overall, BTIG's analysis highlights the uncertainties surrounding the market's performance in the second half of 2024. Key questions remain about the behavior of small-cap stocks and the direction of interest rates.