Don't Worry About Poor Market Depth
There appears, once again, to be an increase in the amount of sell-side chatter about poor market breadth, the idea that it a handful of the largest stocks within benchmark equity indices - principally the S&P 500 and Nasdaq 100, which are underpinning gains in the broader market, as other index members stagnate, or even slide.?
While that is, undoubtedly, the case, as this week's chart comparing the traditional market-cap weighted version of each index to an equal weighted one, I see this as little cause for concern, and certainly not as a reason to expect a pullback in the broader market. Setting aside the fact that markets managed to shrug off narrow breadth for almost the entirety of last year, one must ponder the reasons for the rally that we continue to see.
Personally, as I've written at length, I view the rally as one being built on resilient economic growth continuing to underpin a solid pace of earnings growth, with the added benefit of the forceful, and flexible, 'Fed put' having returned, to provide investors with continued confidence to move out the risk curve, and increase exposure to equities. If this thesis holds, as it has done for the first six months of the year at least, there should be little reason to expect a prolonged pullback in the broader market - whether highly concentrated or not.
In addition, with central banks easing at a relatively synchronised pace across developed markets, the idea that 'a rising tide lifts all boats' should hold true, likely inviting dip-buying demand for indices such as the FTSE 100 and CAC 40, which have faced rather stiff headwinds over the last month or so.
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Michael Brown | Senior Research Strategist at Pepperstone
Assistant Vice President, Wealth Management Associate
8 个月Thanks for posting