THE RALLY CONTINUES: ODDS AND ENDS
The rally in the S&P 500 continues and is up 13% since March 30 – and over 15% for the Nasdaq 100 (very tech weighted). This is now the 10th longest bull market in history. To move into ninth place, this bull only needs to make it to May 29th. It is not surprising the market is overbought which means from a technical perspective the market is due for reversion to the mean. Stocks don’t go up in a straight line. Here are a few market odds and ends for your review:
We are getting mixed signals on market breadth. On one hand, the equal-weighted S&P 500 stalled out at its prior high last week and then proceeded to close lower for four straight days. The broadening trade that dominated the market seems to have taken a breather. On the other hand, the S&P 500’s cumulative advance/decline line indeed made all-time highs last week which acts as confirmation of the move to new highs in price. This suggests that the breakout is on strong footing, contrary to the message of the equal-weighted S&P 500.
The Mag 7 accounts for about a third of the S&P 500’s total market cap, but none of them have managed to hit a new high during this most recent rally. If the market can make new highs without the Mag 7, it could really make a big leg higher if the mega-caps have an extended stretch of outperformance.
After consolidating for five months, it is great to see the AI trade re-emerge. Semiconductors drive the digital economy and have had an astonishing move over the last few weeks. The Philadelphia Semiconductor Index traded higher for 18 straight days through last Friday, rising 47%! Could you have imagined four weeks ago you would be on the verge of witnessing history?
The average performance of all 30 stocks in the Philly index is a gain of 52%, and every single one of them has outperformed the S&P 500. Not sure if we have ever seen that before.
About 28% of S&P 500 components have reported Q1 earnings so far with another 30% on deck this week. Overall, results have been good including guidance. Stock price reactions to earnings have been positive. Of course, companies that miss EPS forecasts are being punished a lot more than companies are gaining in reaction to earnings beats. That is normal.
According to FactSet, earnings estimates for 2026 continue to rise. S&P 500 earnings are now expected to rise 18.6% this year, higher than the 15% growth expected in January. Imagine companies as large as those in the S&P 500 growing earnings at these rates.
More specifically, Mag 7 earnings growth is estimated at 24.6% this year. The S&P 493 should deliver 15.9% growth, again according to FactSet.
Both retail and professional investors have turned very bullish during the market’s incredible run. Investor optimism is a good thing, but you just don’t want too much of it. At a certain level, sentiment becomes a contrarian indicator. We are not there yet, but it is getting closer. CNN’s Fear and Greed Index hit the “Greed” level last Thursday. A month ago, the index was at “Extreme Fear.”
The S&P 500 is up over 6% since the start of October so the market has lived up to its end of the bargain in terms of seasonal strength. This week ends what has historically been the stronger six-month window for stocks as we usher in the “sell in May” six-month period of weakness. Don’t believe it. The “sell in May” trade doesn’t always work. Just last year the S&P 500 rallied more than 20% during that six-month stretch.
In conclusion, there is certainly more good than bad out there. And all this during the war with Iran with higher oil prices. The market always looks ahead and is expecting the war to have minimal effects on our economy. Plus the earnings cycle is incredibly strong, probably good enough to propel the next leg higher in share prices.