S&P 500 Hits New Highs: Concerns Grow Over Narrow Market Rally

As the S&P 500 index continues to hit new highs, fewer stocks are participating in the rally, raising concerns that the rally could reverse if the market leader stumbles. The photo shows a trader at the New York Stock Exchange. Photographed on the 1st (2024 Reuters/Brendan McDermid)

[ニューヨーク ９日 ロイター] – As the S&P 500 index continues to hit new highs, fewer stocks are participating in the rally, raising concerns that the rally could reverse if the market leader stumbles.

A strong market spread, or the number of stocks participating in a stock index’s rally, indicates that the rally is not dependent on a small number of stocks and is often seen as a sign of health.

In 2023, Meta Platforms (META.O), opens new tab, Apple (AAPL.O), opens new tab, Amazon.com (AMZN. O), opens new tab and other giant tech companies known as the “Magnificent Seven” led the market to remain narrow throughout most of the year.

Although the spread improved towards the end of the year, some indicators indicate that it is shrinking again in 2024. For example, the S&P 500 has risen 5.4% since the beginning of the year and hit a new all-time high on the 9th, while 10 stocks on the New York Stock Exchange (NYSE) and Nasdaq set new highs, according to data from High Mount Research. The daily average has fallen to the lowest level since July last year.

According to data from Thrasher Analytics, only 62% of large stocks had a stock price above their 50-day moving average as of Thursday’s close, down from 87% in December. Meanwhile, the Magnificent Seven has accounted for nearly 60% of the S&P 500’s gains this year, according to Dow Jones Indices.

“We’re at an extreme point in history where money is concentrated in a very small number of stocks,” said Michael Smith, senior portfolio manager at Allspring Global Investments. He said that because some stocks are driving the market, there is a risk of a sharp decline in the market if problems such as poor business performance hit large-cap stocks.

While many mega-cap stocks have risen in 2024, Tesla (TSLA.O), opens new tab, has fallen 22%, the third biggest decline among S&P 500 stocks, highlighting just how rapidly star stocks have fallen. It highlights whether it will lose its popularity.

Some investors believe the market spread has narrowed as expectations that the U.S. Federal Reserve will delay its rate cuts have led to an unwinding of buying into sectors that would benefit from lower interest rates. .

The real estate sector of the S&P 500, for example, has fallen 4.4% since the beginning of the year due to concerns over commercial real estate, while the Russell 2000, which is made up of small-cap stocks, has fallen 0.8%.

Some believe that investors should stick to large-cap stocks. These companies often have above-average growth rates and healthy balance sheets. Since 1999, the top 10 companies in the S&P 500 have outperformed the index as a whole by an average of 12.3 percentage points, according to Dow Jones Indices.

At the same time, some point out that over the long term, more stocks are participating in the rally. More than half of the S&P 500’s more than 100 subsectors have risen more than 20% since the current bull market began in October 2022, according to Yardeni Research. However, only the information technology and communications sectors outperformed the index as a whole.

“While some stocks have significantly outperformed the laggards, many of the laggards are also doing very well, just not as well as some,” the firm said.

(Reporter David Randall)

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2024-02-12 02:50:20
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