The stock market rally continues to gain momentum, with an increasing number of stocks participating in the surge. While Big Tech stocks have dominated the attention of investors, all 11 sectors of the S&P 500 managed to finish in the green for the first time since November. This improvement in market breadth is a positive sign for Wall Street, as it indicates a more widespread advance across various sectors and industries.
Although technology stocks have been in the spotlight, they were only the second-best performing sector this week. Consumer staples, a defensive sector that has lagged behind the S&P 500 in recent times, emerged as the top performer. Companies like Costco Wholesale Corp. contributed to the rise of consumer staples, which saw a 4.2% increase over the past 12 months.
Apart from consumer staples, healthcare and industrials were also sectors that reached new all-time highs this week. While healthcare includes high-performing stocks like Eli Lilly & Co., the industrials sector does not feature any of the top-10 stocks that have been driving the S&P 500’s advance over the past year.
Furthermore, market breadth has improved beyond just sectors and industries. The percentage of S&P 500 constituents trading above their 50-day moving average has increased, indicating a greater number of stocks rising. This improvement is not limited to large-cap stocks but also includes midcap and small-cap companies, suggesting a broader participation in the rally.
However, small caps remain a potential concern as only 13% are trading near their 52-week highs. The Russell 2000 index of small-cap stocks has struggled this year and remains in negative territory following a brief rally in late 2023.
Interestingly, the broadening participation in the rally has coincided with a more conservative outlook on Federal Reserve interest-rate cuts. Traders are now betting on the first cut to occur in June, rather than March as previously projected. This shift in expectations may be due to the strength of the U.S. economy, which expanded by 3.3% in the fourth quarter and is expected to continue growing at a similar pace.
While the rally is positive, there are still concerns about the concentration of the top-10 stocks, which represent approximately 30% of the S&P 500’s total market capitalization. This level of concentration is even higher than during the dot-com bubble.
Overall, the stock market rally has seen increased participation from various sectors and industries, signaling a broader advance. The improvement in market breadth, along with a more conservative outlook on interest-rate cuts, has contributed to the positive performance of the S&P 500 and other indices. However, caution remains regarding the concentration of top stocks and the performance of small caps. Investors will continue to monitor these factors as they navigate the current market landscape.
