S&P 500 Rally Looks Like the 2018 Melt-Up. But With One Caveat
S&P 500 Rally Looks Like the 2018 Melt-Up. But With One Caveat
(Bloomberg) -- By one measure, last week’s rally in U.S. stocks produced something not seen since the euphoric surge in early 2018. But that doesn’t mean the S&P 500 is poised to power to an all-time high, warns Renaissance Macro Research.
More than 20% of companies in the equity benchmark reached 52-week highs last week, the most since January 2018 when the index surged to its best month in two years. The S&P 500 jumped 4.4% last week and rose 0.6% Monday, leaving it within 1.8% of its April record.
To analysts who watch charts to predict moves in securities, the broad elevation among stocks is a sign of internal strength that bodes well for the market. Yet Jeff deGraaf, co-founder of RenMac, found a distinctive contrast from 2018 that may cast a shadow on the indicator’s bullishness.
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Stocks that made new highs last week came primarily from defensive sectors, such as utilities, real estate and consumer staples. Back in early 2018, it was technology and cyclical shares that dominated the list.
“That number is bullish historically; its constituency, however, is questionable if not curious,” deGraaf wrote in a note to clients.
The risk-off appetite has ruled the market during the past year as President Trump embarked on a protectionist approach to commerce, turning off the animal spirits that had raged following his election. Over the past 12 months, utilities, real estate and consumer staples have rallied at least 15%, triple the gain in the S&P 500.
While the prevailing caution can be good news for those who view sentiment as a contrarian indicator, it also shows a reluctance among investors to embrace risk. And the bull market needs a healthy dose of risk taking to sustain momentum.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Scott Schnipper
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