Market Breadth is Improving

For the last three months, the total return of the S&P 500 Index and the equal weighted S&P 500 Index are nearly identical, with the equal weighted index at times exceeding the return of the cap weighted version (see chart below).  This is a healthy sign, particularly since we are 80% way through the earnings reporting season for the first quarter.

At the beginning of the year, we had experienced one of the narrowest markets in decades, with a few mega cap tech stocks driving stock markets higher. The fact that the market is broadening as earnings are being released is a very encouraging sign and an indication that more companies are participating in the growth indicated in GDP statistics. A broadening market is an indicator that the overall market is on a better footing and less susceptible to a significant correction. This may still happen, but the risks of it happening are reduced as more companies expand their earnings.

In this regard, the aggregate earnings picture is going well. Here’s how FactSet put it:

“…the index is reporting higher earnings for the first quarter today relative to the end of last week and relative to the end of the quarter. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the first quarter is 5.0% today, compared to an earnings growth rate of 3.5% last week and an earnings growth rate of 3.4% at the end of the first quarter (March 31).

If 5.0% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q2 2022 (5.8%).”

These are certainly welcome developments and suggest the strength in earnings growth experienced by the big cap tech giants in the prior year is expanding. Last week we wrote about the expectations for earnings growth and the thesis that the productivity promises of AI may permeate the economy. If this shift is, in fact, now underway then this promises to be a very interesting time for equity investors.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which Investment(s) may be appropriate for you, consult your financial advisor prior to investing. Information is based on sources believed to be reliable, however, their accuracy or completeness cannot be guaranteed.

The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The S&P 500 index is regarded as one of the best gauges of prominent American equities’ performance, and by extension, that of the stock market overall.

No investment strategy can assure success or completely protect against loss, given the volatility of all securities markets. Statements of forecast and trends are for informational purposes and are not guaranteed to occur in the future. All performance referenced is historical and is no guarantee of future results. Securities investing involves risk, including loss of principal. An investor cannot invest directly in an index.

Posted in