‘Sellers Are Entering the Market’ With S&P Faltering Beyond Tech
(Bloomberg) -- Take out the few big tech companies that keep pushing the S&P 500 Index to all time highs and it looks like the engine is running on fumes.
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While the index is marching from one record to the next, fewer and fewer stocks are participating in this year’s rally. Nearly a third of its constituents have hit a one-month low in the past month, data compiled by Bloomberg through the end of last week show. That far outnumbers those that are pushing it higher. In fact, just 3.2% hit a one-month high, including Apple Inc. and high-flying Nvidia Corp., which just passed Microsoft Corp. to become the world’s most valuable company.
“Sellers are entering the market, and bulls are dancing on the edge of a knife,” said Andrew Thrasher, a technical analyst and portfolio manager at Financial Enhancement Group. “Everything is now dependent on pretty much just Nvidia and Apple. It wont take a whole lot to take this market down.”
While the S&P 500 has set 31 new records this year, few of its members outside of the technology high-flyers are participating in the advance. In the last three months, the 10 largest stocks in the index by market capitalization — mostly tech giants — have posted a median gain of 17%, while the rest have lost 1.3%, according to data compiled by Bloomberg Intelligence equity strategist Gillian Wolff.
A bevy of measures show how market breadth remains weak, boosting uncertainty about the rally’s staying power. Take the NYSE advance-decline line, a popular indicator that tracks the number of securities rising minus the number falling on the exchange each day. It closed at a fresh six-week low on Friday.
The share of the S&P 500 stocks trading above their 50-day moving averages is also declining, down to 47% on Monday from 85% in late March and 92% in January. This is happening as a gauge of aggregate positioning in US stocks is hovering near multi-year highs, raising concern that investors have little room to boost equity holdings. A Deutsche Bank measure of equity exposure among discretionary and rules-based investors is hovering at the highest since November 2021.
For now at least, the rally keeps chugging along. The S&P 500 rose 0.3% on Tuesday, putting its year-to-date gain at 15%. However, an equal-weight version of the index, which makes no distinction between the size of the companies, has trailed the market cap-weighted version by nearly 11 percentage points this year. If 2024 were to end now, it would be the second-widest gap since the dot-com mania in 1998 — right behind 2023.
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