Mega cap stocks Tesla, Microsoft, Apple and Meta have gained 20-80 per cent this year. Photograph: David Zalubowski/APThe US rally has been driven by a small number of mega-cap tech stocks. Does that matter?
Multiple strategists are concerned about the narrowness of the US advance, as documented in recent Stocktake columns. For example, the tech-heavy Nasdaq has soared this year, but just four stocks account for half those gains. The good news: that’s normal, says Ned Davis Research’s Ed Clissold. He examined previous strong years where the Nasdaq gained 10-25 per cent. The median number of stocks accounting for half those gains? Just three.
However, other concerns about market breadth are valid. A healthy rally should be broad, one where most stocks are participating in the advance. Clissold notes just a third of stocks were recently trading above their 50-day average. That number rose last week, and investors will be hoping it continues to rise, as low numbers are “worrying”.