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Bespoke: Narrow Rally Is #FakeNews

TedTed
in Fund Discussions
FYI: We’ve been hearing a lot of talk over the last few days that just a handful of stocks are driving the rally in US equities. This suggests that the gains aren’t representative of broad market strength, but instead strength in just a handful of stocks. We’ll be the first to agree that the S&P 500’s gains this year are the result of gains in some of the index’s largest members, but that’s only because they have grown so large. As we noted earlier this week, the five largest companies in the S&P 500 have a combined market cap of over $2.75 trillion, and the four largest companies in the index have a greater market cap than the entire Russell 2000 small-cap index. Just because the largest companies in the S&P 500 are doing so well doesn’t mean that the rest of the index is doing poorly though.

The first chart below shows the S&P 500 market cap weighted index over the last twelve months. As shown in the chart, after the rally of the last few days the index is currently just 0.52% below its all-time high from 3/1.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/narrow-rally-is-fakenews/

Comments

  • Old_Skeet
    edited April 2017
    I follow the breath of the S&P 500 Index at market close today (April 26th) the Index had 78.4% of its member stocks above the 200 day moving average line. On March 1st when the Index reached a new all time high about 82% of the stocks were above the 200 day moving average line. In compairing an equal weighted Index 500 fund to the cap weighted 500 fund the cap weighted fund leads because of the performace of the heavest weighted companies are the better performing. I guess this is where they are coming from in stating that the top five compnies are doing the heavy lifting. However, from my perspective this is a pretty broad rally by better than 75% of the Index's 500 member companies since they are above the 200 day moving average while 62.4% are above the 50 day moving average.

    For me the breath is not the concern it is the forward earnings estimates that have been place on the Index by analyist of about $132.00 for a rolling twelve month period and about $145.00 for all of 2018. In reality, the Index produced reported earnings for the past twelve month period ending March 31, 2017 back of $100.00 at $99.70 which is up from a year ago at $86.92. So, earnings are improving but I'm thinking they will fall short of these forward projections. From my perspective, if I buy stocks off of current forward earnings estimates I will pay too much; and, I believe currently stocks prices are extended based upon their TTM (reported) earnings.

    So ... How much are you willing the pay for stocks based upon forward estimates because often times these estimates get revised downward just before companies report earnings and revenues.

    There is an old saying ... Don't tell me what your going to do ... Show me! The show me number is $99.70.

    And, so it goes @$132.00 ... and goes ... and it just keeps going @$145.00 (2018) ... and, now its gone @$99.70! Hey, we analyst spoofed you again.

    Skeet

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