Four-Hundred-Plus Stocks Just Joined the 'Magnificent Seven' By Sean Michael Cummings, analyst, True Wealth
The bears have sung the same refrain all year... "Only a handful of stocks are propping up the S&P 500 Index," they argue. "This bull market can't be real." It's true – seven mega-cap companies have driven most of the market's gains this year. I'm sure you know the companies I mean... Apple (AAPL), Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), Amazon (AMZN), and Tesla (TSLA). The financial media has dubbed these companies the "Magnificent Seven" due to their size and influence on the market. And their equally "magnificent" performance in the past 12 months is a big deal... The S&P 500 has returned about 20% year to date. But if you take the Magnificent Seven out of the equation, that return drops to just 10%. If you sat out of this year's gains waiting for a broader rally, though, you're about to get your wish... Today, that rally is on. It's not just about the Magnificent Seven anymore... And based on history, this change points to a big year ahead for the stock market. Let me explain...
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Right now, about eight in 10 stocks are breaking out to the upside. We can see this by tracking the percentage of stocks in the S&P 500 that are trading above their 50-day moving averages ("DMAs"). A 50-DMA is just what it sounds like. It tracks the average value of an asset for the last 50 days. It helps smooth out the noise of daily data to give us a clearer picture of the short-term trend. When a stock breaks out above its 50-DMA, that means the price is rising faster than it has in the recent past – meaning the stock is gaining momentum. That's exactly what we're seeing in the broad U.S. market today. Check it out... As you can see, stocks are breaking out above the 50-DMA for the first time in months. But there's more to this story... because they're breaking out with breadth. At the start of December, 86% of companies in the S&P 500 were trading above their 50-DMAs. That means roughly 430 stocks surged higher... the broadest breakout since July. Take a look... I was curious what this kind of broad breakout implied for future returns. So I tested other cases where 85% of stocks or more were trading above their 50-DMAs. Since 2001, stocks have surged this broadly about 7% of the time. So it's a relatively small sample size. But this signal still led to market-beating returns. Take a look... Stocks have returned about 6% annually over the past 22 years. But buying during broad rallies like we're seeing today led to outperformance. Stocks more than doubled their returns for the six-month period after moves like these... And they more than doubled their typical 12-month returns, too. What's more, this signal has been highly reliable. Stocks were positive about 97% of the time in the year following the signal. And in the worst 12-month period, stocks were down just 5%. So if you've been waiting for the broad rally to buy stocks, now is a good time to act. The market is surging across the board... And that points to even more upside in 2024. Good investing, Sean Michael Cummings Further Reading Stocks were in "oversold" territory in late October. But sentiment quickly reversed last month. Sudden swings toward optimism are often a sign that the good times are running out of steam – but not always. Find out what to expect for the year-end rally... Read more here. The CBOE Volatility Index is one of the simplest ways to gauge investor fear. This indicator spiked recently... But now, it's telling us that the wave of panic is starting to fade. And based on history, that's a bullish sign for the broad market... Learn more here. |
Market Notes HIGHS AND LOWS NEW HIGHS OF NOTE LAST WEEK Moody's (MCO)... credit-ratings firm
Blackstone (BX)... asset management
General Dynamics (GD)... "offense" contractor
Huntington Ingalls Industries (HII)... military ships
Gartner (IT)... research and consulting
IBM (IBM)... computers
CrowdStrike (CRWD)... cloud security
Uber Technologies (UBER)... ride hailing
Spotify Technology (SPOT)... audio streaming
Garmin (GRMN)... GPS and wearables
Costco Wholesale (COST)... membership-only stores
Ross Stores (ROST)... "everything" stores
American Eagle Outfitters (AEO)... apparel
Sprouts Farmers Market (SFM)... grocery stores
DoorDash (DASH)... food-delivery service
Ingersoll Rand (IR)... manufacturing
Stellantis (STLA)... automaker
Sherwin-Williams (SHW)... paint
Trane Technologies (TT)... HVAC manufacturer
T-Mobile (TMUS)... telecom giant
Lennar (LEN)... homebuilder
D.R. Horton (DHI)... homebuilder NEW LOWS OF NOTE LAST WEEK Alibaba (BABA)... Chinese e-commerce platform
Nokia (NOK)... IT and networks
Pfizer (PFE)... pharmaceuticals
British American Tobacco (BTI)... tobacco
ExxonMobil (XOM)... oil and gas
Sasol (SSL)... chemicals
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