A rally in big technology stocks got most of the credit for pushing global markets higher this week. But in the United States, they couldn't do it without a little help from their friends.
As the S&P 500 SPX posted its best weekly advance since early January, one detail stood out this week: All 11 of the big index's sectors managed to close in the green for the first time since November, according to Dow Jones Market Data. The S&P 500 managed its 13th record close of 2024 on Friday, even as IT stocks and other sectors tied to big technology companies ended the session in the red, according to FactSet data.
It's the latest sign that market breadth, cited as a serious weakness by many Wall Street bears, is quietly improving after a brief lull — even as big tech companies, semiconductor stocks and the AI craze continue to attract attention. Most investors. said Sam Stovall, chief investment officer at CFRA, of investors.
“It's like a rising tide that lifts all boats. There's more to be involved in this progress. It's more than just the 'Seven Wonders.'” This euphoria seems to be lifting all sectors and the majority of industries and stocks.
Interestingly, IT was the second best performing sector this week. This may come as a surprise to some investors after Nvidia Corp.'s NVDA.
Historic high on Thursday after the latest earnings report. The chipmaker's results sparked a global rally in semiconductor stocks.
Once the dust settled on Friday, the best performer was the consumer staples sector, a defensive sector that has significantly lagged the S&P 500 — not to mention the market-beating communications, IT services and consumer discretionary sectors, three sectors that are home to… “Wonderful sectors.” Seven” — significantly over the past year. Consumer staples rose 4.2% over the past 12 months, compared with 26.9% for the S&P 500.
But this week, it came out on top — with the help of companies like Costco Wholesale Corp. COST,
Which rose 1.9% as of Friday to a record high, according to FactSet data.
While IT received most of the attention, it was just one of three sectors that reached all-time highs this week; The others were health care and industrial. While healthcare is the home of Eli Lilly & Co. LLY flying high,
The industrials sector does not include any of the top 10 stocks that get much of the credit for driving the bulk of the S&P 500's advance over the past year.
|
Standard & Poor's 500 sector |
Gains during the week ending February 23 |
|
Consumer Goods |
2.1% |
|
information technology |
2% |
|
Material |
1.9% |
|
Industries |
1.8% |
|
Finance |
1.6% |
|
Consumer Dictionary |
1.54% |
|
health care |
1.51% |
|
Telecommunications Services |
1.49% |
|
Services |
1.2% |
|
Real estate |
0.9% |
|
energy |
0.4% |
Looking beyond sectors and industries, more large-cap individual stocks appear to be participating in the rally, according to the closely watched Market Breadth Index.
The percentage of S&P 500 components trading above their 50-day moving average rose to more than 67% on Friday, according to Dow Jones Market Data. While that's still well below the high of 91% on Jan. 2, it represents a marked improvement from this year's low, which was just under 51% on Feb. 13, according to Dow Jones Market Data.
But the improvement in the number of rising stocks is not limited to the S&P 500. Vincent Randazzo, head of technical research at Lowry Technical Analysis, tracks several breadth indicators in the broader market, including mid-cap and small-caps.
Lowry's comp measure measures market breadth by taking all stocks traded on the NYSE, excluding preferred stocks, closed-end bond funds and ADRs, and measuring the share of companies whose stocks are rising. It also tracks the number of NYSE-traded companies that are trading within 2% of their 52-week highs.
For the latter measure, the share of midcap companies trading at or near their highs over the past year rose to 34% as of Thursday, up from 5% when the S&P 500 hit a 52-week low in October.
Large-cap stocks saw a bigger turnaround: While only 4% traded at or near their 52-week highs, that number had improved to 41% as of Thursday.
“The market has gotten broader under the surface, despite the fact that those big names are still doing well,” Randazzo said.
The joining of mid-cap companies with their large-cap counterparts suggests the rally could continue, Randazzo said. “You get that second level of engagement as well,” he said.
However, small-cap stocks remain a potential fly, with only 13% trading within striking distance of their 52-week highs. Russell 2000 Root,
One closely watched small-cap index fell 0.8% this week, still mired in the red so far this year after a short-lived but strong rally in November and December.
Perhaps the most curious aspect of the increased participation in the rally is that it has coincided with the adoption of more conservative expectations regarding the pace of interest rate cuts by the Federal Reserve. Traders are now betting that the first cut will arrive in June, down from expectations earlier this year that it would happen in March, according to federal funds futures tracked by the Chicago Mercantile Exchange.
They also lowered their expectations for the number of cuts before the end of the year to four, from six previously. Stocks skyrocketed in a broad rally that began in November, when senior Fed officials began hinting that the central bank could remove its hiking bias from its guidance, which Chairman Jerome Powell eventually did in December. The shift sparked a furious rally that briefly saw smaller lagging companies outperform their Big Tech counterparts.
One possible explanation is the strength of the US economy. According to preliminary US government estimates, GDP expanded by 3.3% during the fourth quarter. Growth is expected to continue at a similar pace, according to the Atlanta Federal Reserve's GDP forecast, which says GDP is currently on track for 2.9% growth through the first quarter of 2024.
Inflation may have rebounded in January, but below the headline figure, investors saw a slowdown in the pace of commodity inflation. Meanwhile, hot spots in services can be easily explained, said James St. Aubyn, chief investment officer at Sierra Mutual Funds.
“If you combine that with growth being as strong as it is, the Fed has no reason to cut it aggressively. That's a perfect scenario in many ways for stocks to do well, not just long-term growth names like Nvidia and Microsoft,” he said during an interview with MarketWatch. .
However, St. Aubin warned that the top 10 stocks still represent roughly 30% of the S&P 500's total market capitalization, which is even higher than at the height of the dot-com bubble.
“Supply was very good in the fourth quarter, then became weak early in the first quarter; [and] “Now it seems like it's coming back a little bit,” St. Aubin added. “But the intense focus is still there.”
The S&P 500 rose 1.7% this week to 5,088.80, its biggest weekly advance since Jan. 12, according to Dow Jones Market Data. The Nasdaq Composite rose 1.4% to 15,996.82. Dow Jones Industrial Average DJIA,
While the index rose 503.54 points, or 1.3%, to 39,131.53 points.
