The U.S. stock market’s rally to new highs has been propelled by so few stocks that it’s reminding some on Wall Street of the runup to the dot-com bubble.
Four of the last five closing records for the S&P 500 Index occurred even as decliners in the index outnumbered gainers. In the month of April, just 23 per cent of S&P 500 members beat the index, which Bank of America Global Research strategists says is the fourth-lowest monthly reading in the bank’s database going back to 1986.
The lack of breadth behind the new index records is raising concerns across Wall Street.
The median index member remains 13 per cent below its respective high, which is the “lowest level since the dot-com bubble outside of briefly in mid-2023,” Ben Snider, chief U.S. equity strategist at Goldman Sachs & Co., wrote in an April 30 note.
Since Jack Welch; I always have worried about how corporate profit reports might have been massaged.
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Wasn’t this just posted a few minutes ago?
DB2
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Yes in response to a poster on another thread.
I thought more eyes would read this if posted in a new post. And hopefully generate a discussion whether a lack of market breadth is a valid concern.
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The sector posting record growth and record profits is advancing. Other sectors that aren’t doing as well are retreating.
I guess I’d be more concerned if it were the opposite.
Edit: Expanding on this thought. META, NVDA, MSFT and GOOGL have forward PE of about 22. AMZN and AAPL around 30. All have double digit revenue growth.
WMT and COST forward PE of about 45, with revenue growth of about 4% and 8%, respectively.
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Here’s one study…
https://www.marketwatch.com/story/10-stocks-are-driving-the-markets-gains-but-investors-shouldnt-be-concerned-923cc4f1?mod=home-page
A handful of Big Tech stocks are once again dominating the stock market. But that’s not necessarily a bad thing.
In fact, going back to the 1960s, the S&P 500 has tended to see stronger performance during periods where market concentration has been rising, according to a recent report from Michael Mauboussin, head of consilient research at Counterpoint Global, and Dan Callahan, vice president of Counterpoint.
DB2
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The “tech-heavy” NASDAQ has outperformed the more market-neutral S&P 500 for decades. Tech is also more volatile than the market average. It should not surprise that AI tech should have parallels with the dot.com tech. As can be expected from the Power Law Distribution a lot of the AI players will go broke while the winners will become insanely rich.
These are good reasons for risk averse investors not to climb the Peak of Inflated Expectations but to have patience and get in board at the Trough of Disillusionment.
The problem is that this is contrary to normal human behaviour. If denim jeans got rich while gold prospectors went broke maybe we should concentrate on the infrastructure builders instead of on the infrastructure buyers.
The Captain
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I don’t think that is factual. The NASDAQ underperformed the S&P 500 for the overwhelming majority of the 20 year period between 2000 and 2020 (the NASDAQ lost over 40% from 2000 to 2010). The NASDAQ really started to take off after the Great Recession but it took 10 years to catch up to the the S&P 500.
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It is factual cumulatively but not necessarily every year. Overlay the charts since NASDAQ inception to see what I mean.
The Captain
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