S&P 500: New all-time high unveils new bull market – Charles Schwab

S&P 500 has reached all-time high cementing that a new bull market has been underway since the March low. This was the fifth time in history that the market hit an all-time high while the economy was still in a recession. Market breadth has been underwhelming while the concentration of the largest five stocks remains a risk, Lizz Ann Sonders from Charles Schwab reports.

Key quotes

“The stock market rally off the March 23 low is now ‘officially’ a new bull market, courtesy of the S&P 500 having hit a new all-time high. It was the fastest recovery in history to a new high following a decline of at least 30% historically (the S&P was down 34% from February 19 to March 23; also the fastest move in history from an all-time high to bear market territory).”

“The dominance of the five largest stocks in the S&P 500 have received much investor attention (and buying pressure). In equal-weighted terms, they represent 1% of the S&P 500; but in cap-weighted terms, they now represent nearly their own quartile. This cycle’s dominance by the top five stocks is outsized relative to past cycles. Following the past three major bear market lows, the five largest stocks did not perform as well as they have today.”

“Concentration has its risks; particularly with regard to the relatively weak breadth statistics accompanying the March new all-time highs. The percentage of S&P 500 stocks above their 50-day and 200-day moving averages have rolled over in conjunction with the overall index hitting a new high. In addition, less than 10% of the S&P 500’s members are trading at a new 52-week high.”

“The recent all-time high marked the fifth time in history when the S&P 500 hit an all-time high while the economy was still officially in a NBER-defined recession. The prior four times were in January 1961, July 1980, November 1982 and February 1991. In all four cases, the NBER declared the recession as having concluded within the subsequent month.”

“I worry about the signs of froth in the market and among some behavioral measures of investor sentiment; not to mention traditional valuation metrics that are historically-stretched. This is not an environment in which greed should dominate investment decisions; but instead one for discipline around diversification and periodic rebalancing. Momentum can power the stock market beyond fundamental supports.”