Market breadth expanding in 2024

For much of 2023, the talk in the equity markets centered around extreme levels of performance concentration of the large capitalization equity indices. Specifically, the magnificent seven (Apple, Google, Tesla, Microsoft, Nvidia, Meta, and Amazon) could do no wrong, while other areas of the stock market went wanting. A critical statistic that illustrates last year's performance concentration is the largest ten stocks in the S&P 500 contributed 68% of the index's overall performance.

In an ideal scenario, markets would experience broader participation from other sectors and companies in the economy outside of large, primarily technology-related companies. Enter 2024. Currently, energy, financials and industrials are all up double digits in a market that has shown that other sectors outside of technology and their related brethren can provide returns.

This week's chart shows the price level of the S&P 500 (dark blue line) and the percent of S&P 500 companies' stocks trading above their 200-day moving averages (light blue line). The 200-day moving average is simply the average price during the most recent 200 trading days, effectively measuring market breadth. So, what percent of S&P 500 companies' stocks are currently trading above their 200-day average?

At the end of the first quarter, 86% of S&P 500 companies' stocks were trading above their 200-day moving average, the highest level in the past three years. The S&P 500 experienced sharp drops in this measure of breadth in the summer and fall of 2023, but it has rebounded, and for a significant amount of time. So, in 2024, if someone says that only a handful of stocks are performing well, they are wrong. And all things equal, we would prefer to see performance from a broad array of stocks instead of just a few names.

Technical analysts may argue that this is a bullish sign. We are not making that call here. There are still potential headwinds to the market including inflation, the Federal Reserve, geopolitics and general market exhaustion. However, we would rather see the trend continue toward broad participation in equity market performance than narrow participation.

This week's commentary is provided by Mark Gibbens, Investment Strategist at BOK Financial.

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