One characteristic you’ll see at the bottom of any bear market is a major shift into higher beta names. This represents a shift from lower risk assets into higher risk assets and is generally due to a major shift in investor sentiment. In trying to gauge the appetite for risk in this current bull market I compiled data comparing the Nasdaq and the S&P 500 at the very beginning of each major bull market since 1970. You’ll notice a similar pattern in each: the appetite for risk (represented by the Nasdaq) is always very high at the beginning stages of a new bull market.  I’ve excluded small caps and comparable high risk indices due to the fact that the recent data is heavily skewed by short covering.

Although this bull market is (perhaps) in its infancy there has been almost no evidence of investors reaching for risk via Nasdaq shares.  Instead, we’ve seen very sharp moves in highly shorted names and low price junk rated stocks.  The Nasdaq has actually underperformed the S&P 500 since the rally started on March 9th.   In a healthy bull market you would expect investors to gravitate towards the higher beta Nasdaq (especially in the most recent environment in which tech names have much cleaner balance sheets), however, we’re not seeing the same trend in the short timeframe of this bull market that we’ve seen in prior bulls.   With just 10 weeks of data it’s difficult to come to a clear conclusion, but thus far the Nasdaq doesn’t appear to be leading the way as it has in the beginning of prior bull markets.