S&P 500 Up 18% in 39 Trading Sessions: The Rally Is Real

The S&P 500 Index has been up for 8 straight weeks. Since the most recent low on March 30, the stock index is up 18% in just 39 trading sessions. Simply put, we are on a tear.

And despite the doomsday sayers, the stock surge is not coming out of thin air.

Q1 Earnings Growth at 28%: It’s Not Just the Magnificent 7

According to LPL Chief Equity Strategist Jeff Buchbinder, first-quarter earnings growth for the companies that make up the Index is tracking at an astounding year-over-year rate of nearly 28%. And it’s not just the so-called Magnificent 7 stocks that are driving the growth. Excluding the Mag 7, the remaining 493 companies that make up the Index are still expected to be up nearly 20%.

Strong Market Fundamentals, But Short-Term Caution and Diversification Still Matter

As we’ve said before on this segment, the fundamentals of the companies that underpin the Index are strong. And the case for continued growth is strong. But, there are reasons to be cautious in the short-term. And, reasons to remain diversified.

AI and Technology Are Driving Stock Growth — But Is a Rotation Coming?

As we know, technology is driving growth. The Artificial Intelligence buildout and implementation will continue to drive growth. The question is, where will the stock growth be? Will large-cap tech stocks continue to lead the way? Or is there a reason to believe a rotation to other stocks is coming?

Our partners from LPL Research did some technical analysis to give us some guidance on what could happen next.

LPL Research Technical Analysis: How Many S&P 500 Stocks Are Outperforming the Index?

One of the ways they did that is to analyze how many stocks are outperforming the broader index. In other words, if you take the performance of the S&P 500 Index, and compare it to the performance of each individual stock that makes up the index, how many stocks are doing better than the overall index.

33% Stock Outperformance — Historically Low and Signaling a Broad Market Rotation

If you take a look at this chart, you can see the historical average over the past 20 years is about 50%.

Half the stocks in the index typically outperform the overall index. Right now, it’s about 33%. As you can see on the chart, that’s approaching historically low territory. That could suggest a broad market rotation is coming. In the past, when the outperformance levels got this low, large cap value and small cap stocks outperformed over the next one, three, and six month periods. LPL cautions that a short term pullback in the Index could be on the horizon.

Why Investors Need a Financial Advisor and Diversified Portfolio in This Market

So what does this mean for investors? The long-term outlook for stocks remains solid, but, if you’re going it alone on your investments, these are all good reasons not to. Over concentration into the hot stocks of the day can cause a bigger drop to your portfolio than working with a financial advisor to create a diversified portfolio with on-going management that can make changes to help you potentially minimize loss and take advantage of market rotations.

Securities are offered through LPL Financial, Member FINRA/SIPC. GenWealth Financial Advisors is an other business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance, LLC, a registered investment adviser. Independent Advisor Alliance, LLC is a separate entity from LPL Financial.