As we enter the final “official” week of summer and begin to transition from long, hot days into the end-of-year stretch, we can’t help but notice that the stock market appears to be rotating as well. While the S&P 500 sits close to record levels, we highlight that breadth is broadening and other, lesser-followed pockets of the equity market have moved to new highs. All else being equal, this is healthy and something investors should welcome.
S&P 500
The main index on everyone’s radar closed lower last week but remains a stone’s throw from record levels. At the same time, the S&P 500 continues to trade above a steadily rising 60-week moving average.
If I were to put on my “classical technical analysis” hat—which I don’t often do—I would also highlight that there is price-based support near the 6,100 level. Until this mark and the moving average are broken, it’s hard to make a compelling bear case.
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Source: Optuma
NYSE New Highs & New Lows
The bullish case for stocks becomes stronger when you consider that, despite a lower close for the S&P 500 last week, we saw large increases in the percentage of NYSE-listed stocks making new 52-week highs. At the same time, the percentage making new 52-week lows fell off a cliff.
Source: Optuma
S&P 500 Equal Weight Index
Here’s where the story becomes a lot more interesting. While equity bears often highlight the fact that the S&P 500 is too concentrated—meaning the top 10 stocks make up a disproportionately large part of the index—the S&P 500 Equal Weight Index is trading at record highs.
At the same time, the trend relative to the S&P 500 is attempting to turn higher. While we don’t need to see outperformance from Equal Weight, it would be compelling to see a rotation into performance that keeps pace with the cap-weighted index.
Source: Optuma
MSCI ACWI ex-U.S. Index Fund
We’ve been highlighting the “rest of the world” more frequently in this weekly note, and for good reason. The MSCI ACWI ex-U.S. Index Fund (ACWX) has been in a textbook uptrend since bottoming in October 2022.
There is a clear series of higher highs and higher lows. Dips below the rising 60-week moving average have been reversed. The only knock we have is that it may be somewhat extended in the near term, with a 60-week z-score at 2.434.
Source: Optuma
Final Thoughts
Just as we begin to rotate out of summer and into the end of the year, the stock market is also beginning to rotate. It’s healthy to see participation broadening out near record levels. If the S&P 500 were the only index trading at record highs, I would argue that’s a source of concern—but that’s not the case.
As always, thank you for reading this note each week. Have a great last week of summer and a safe Labor Day Weekend.
Dan Russo, CMT
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