With the market now having cleared the all-important 4200 on SP500, the question now becomes “what’s next?”. The answer is “breadth”.
As we have noted prior, almost all of the market return in 2023 for the equity markets has come at the hands of the mega cap tech sector. In the SP500 about 10 stocks have done all the lifting, while the return for the remaining 490 has basically been flat YTD. That is starting to change and that is positive. “Breadth” is about getting more participation from sectors beyond just mega large tech. A month ago, it was only the info tech and communication services (think mega large tech names like AMZN and MSFT etc) sectors that had >65% of the underlying companies trading above their 50-day moving average. The rest of the market was languishing mightily with only 40-50% trading in such a positive mode. That has changed. Participation in the rally is broadening and other sectors are now getting going. The chart below notes most sectors now having underlying companies trading above their 50-day moving average (roughly 65% now above that level).
The interesting thing now is that the sectors which are NOT improving all share the same characteristic: defensive in nature. Utilities, staples, and healthcare – all last year’s darlings – are floundering while the broader market appears to be just getting going.
At the end of the day, it is not a stock market, but rather a market of stocks. This rally is catching broader participation. “Breadth” is very healthy and it’s here.
Source: Charles Schwab, Bloomberg as of June 6, 2023, S&P 500 sectors shown
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