Stocktake: Broad market rally still looks healthy

Broad-based nature of rally suggests any pullback will not be a long-lasting affair

Market sentiment has become worryingly bullish in recent weeks and many observers think stocks have run too far, too fast. Nevertheless, the broad-based nature of this rally suggests any pullback will not be a long-lasting affair.

Last week, 94 per cent of S&P 500 stocks were trading above their 200-day moving average – the highest reading since 2013, says Ritholtz Wealth Management's Michael Batnick.

Last year, many worried the rally was being kept afloat by a narrow bunch of large-cap tech stocks. Today, none of the five biggest tech companies are at new highs, but the index is doing just fine without them.

Median returns

Indeed, 2021 has been a reversal of 2020 thus far: the top 25 stocks in 2020 have fallen slightly this year but the bottom 25 stocks have enjoyed median returns of 32 per cent, according to Compound Capital Advisors' Charlie Bilello.

A broad rally is always preferable to a narrow one. Market breadth suggests stocks are “in a very healthy place right now”, says Batnick.