Traders react after the closing bell on the floor of the New York Stock Exchange (NYSE) in New York, U.S. (Photographer: Michael Nagle/Bloomberg)  

What We Learned This Week Is That Stocks Are Still in a Bull Market

(Bloomberg) -- It may not be obvious amid the screaming headlines -- about currency manipulation, Fed jawboning, Russia summit, yuan weakening, etc. -- but U.S. stocks continue their low-volatility, bull-market grind higher.

The 2,800 level on the S&P 500 has been bested three sessions in a row on a closing basis -- and is on pace for a fourth. That level is acting as a floor during pullbacks today and on Thursday. The longer 2,800 holds, the louder bulls will get about a path being cleared to make a run-up to challenge the old highs reached in January.

We also learned this week that Netflix’s plunge be damned, buy-the-dip is alive and well as a trading strategy. That resulted in the Nasdaq Composite and S&P Tech indexes setting record highs, while the S&P Smallcap 600 index ventured into all-time high territory, too. When both small and large cap parts of the stock market are stepping higher, it’s a sign the breadth of the advance is broad, and therefore healthy. Note that the S&P 500 cumulative breadth index set another record Wednesday. Further, two of the four FANG stocks are flat to lower this week - so they don’t get much of any credit for the market’s modest gain. Instead, JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. alone account for nearly all of the S&P’s small advance.

The early days of second quarter earnings season show fundamentals are holding up. 90% of S&P 500 companies are beating analysts’ 2Q earnings expectations, according to Bloomberg’s tally. EPS growth is a slower than expected 20.5%, though it’s supposed to accelerate to 22% once energy companies make their large contribution. On the top line, 2Q revenue growth clocks in at a robust 9.5% (the expectation is for 9% when all is said and done). Sometimes it’s easier to keep it simple: the trend is still your friend, no matter what the day’s bombastic headlines say.

What We Learned This Week Is That Stocks Are Still in a Bull Market

The S&P 500’s push above 2,800 this week comes amid a smaller contribution from technology stocks in June and July. Consider:

  • From the start of the year through the end of May, nine of the top ten point contributors to the S&P 500’s gain were technology stocks (that includes Amazon and Netflix even though they’re in the consumer discretionary sector) and accounted for 231% of the S&P’s 32-point gain, according to Bloomberg’s historical mover function.
  • Since the start of June through yesterday’s close, six of the top ten point contributors are in tech, yet they only account for 29% of the S&P’s 99-point gain.

What’s changed is the breadth of the advance. Through May 31, there were more decliners than advancers on the S&P 500 (267 versus 246), so tech stood out like a sore thumb. But since June 1, advancers outpace decliners by 2.6:1 (raw numbers are 371 to 140). Less technology dominance means more space for other industries, and that in turn gives equities a firmer base off of which to work higher, or at the least to limit any potential future decline.

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