Stocktake: Is the market rally too narrow? Maybe not

Biggest gains have been made by tech giants, but vast majority of stocks are doing well

The enormous share price gains of mega-cap technology companies such as Apple, which recently became the world's first $3 trillion firm, has prompted some commentary as to whether the market rally is too thin.

Some concern is understandable. The 10 largest S&P 500 stocks have hugely outperformed, gaining some 40 per cent over the last year. The largest, Apple, has enjoyed a fivefold rise over the last three years, with much of this due to an expanding price/earnings ratio.

Still, while the biggest stocks have dominated, it’s not like other companies have stagnated. Almost three-quarters of stocks are above their 200-day moving average. Yardeni Research data shows 85 per cent of stocks gained over the last year. More notably, an equal-weighted version of the S&P 500, which weighs all 500 stocks equally as opposed to by market capitalisation, is up 24 per cent during that time.

Yes, this has been a top-heavy market, but the rally hasn’t been thin – almost all stocks have participated.