The Nasdaq Composite Index broke the 20,000 mark for the first time last Wednesday, jumping from 10,000 to this point in less than five years, just weeks after the S&P 500 index also broke the 6,000 mark for the first time, but this excitement quickly faded.

The Nasdaq index quickly gave back its gains after reaching the milestone, rising only 0.3% last week, closing at 19,927 points, while the S&P 500 index fell 0.6%, and the Dow Jones Industrial Average fell 1.8%, closing down for seven consecutive days last Friday.

The rise of the Nasdaq index has been mainly driven by a few large tech companies like Tesla and Alphabet, and their success may overshadow the fundamental weaknesses of the broader market.

Most non-tech sector stocks have been experiencing a slow but steady sell-off. According to Dow Jones market data, for the past 10 consecutive days ending last Friday, the number of declining stocks in the S&P 500 exceeded the number of advancing stocks, marking the longest duration since 2000.

Notably, stocks that look cheap have become even cheaper. The iShares S&P 500 Value ETF has fallen for ten consecutive days, marking its worst performance since its launch in 2000, with daily declines not being large but more like a slow decline, causing the index to fall about 4% over two weeks. This indicates the extent to which the recent rally has been driven by the most expensive stocks.

How dire is the situation for value investors?

Famous value investor Bill Nygren recounted that last week, while buying razors at a pharmacy, a pharmacy employee who recognized him approached and said, 'I bet your portfolio hasn't gone up as much as mine. All my money is invested in Bitcoin.' Nygren recalled, 'And you know, he was right. My portfolio hasn't gone up as much as his.'

This Oakmark fund manager has achieved relatively good performance this year even without investing in digital currencies. As of last Thursday, his fund's return was 20%, while the iShares value ETF was at 17%, and the S&P 500 index was at 29%. Nygren dismissed the employee's boast, saying, 'There will always be someone making money on things we do not understand.'

Some of Nygren's bets have already paid off. One of the winners is General Motors, one of his largest holdings. He said that as the broader market sold off stocks, General Motors actively repurchased its own shares and succeeded. It has transformed from a 'frustrating' stock to a top performer, rising 46% this year.

Nygren compared General Motors' strategy to that of MicroStrategy, a software company that issues more stock to buy Bitcoin. Typically, this would not be considered shareholder-friendly, but nevertheless, the stock has risen about 500% this year and nearly 4% in the past week.

However, Nygren said that at some point, the situation may reverse, 'We never know when the market will correct the valuation gap, which is why patience is required as a value investor.'

Investors need not worry about the significant gap between winners and losers just yet; it may just be noise. 'We are all taught that a broader rebound is better, but clearly, at least within the S&P 500, the opposite is true,' wrote Steve Sosnick, chief strategist at Interactive Brokers. 'I wish I could assert that this is a meaningful signal, but it may just be a statistical anomaly.'

This means that investors should still feel relatively comfortable holding stocks as the holidays approach. 'The party can continue, Santa can come, whether by sleigh or through interest rate cuts,' he added. 'But savvy traders should at least be aware of some warning signs regarding the overall health of the market; after all, people usually have a hangover after a party.'

Article reposted from: Jin Shi Data