The S&P 500 Index achieved its all-time closing high on February 19, 2020 at 3386. This week, the market continued to approach this level. The following graph, from Strategas Research, is split into two sections. The top shows the following information:
- The value of the S&P 500 index (black line)
- The 50-day moving average (blue line)
- The 200-day moving average (red line)
The bottom graph shows the percentage of stocks trading at their highest price in the last 20 trading days.
What does this graph tell us about the current market environment?
- The recent spike on the bottom half of the graph shows that more stocks are trading at 20-day highs. Currently around half of stocks in the S&P 500 fit this characteristic.
- More stocks going up is a good sign for the market. As we have mentioned previously, the S&P 500 is a capitalization-weighted index: the biggest stocks with the most value have the biggest impact on how the index performs. This means there can be times where a few large stocks are doing well, so the index goes higher even if many of its smaller stocks are struggling. When a larger number of stocks are increasing, it demonstrates more participation in the advance which shows the overall market is becoming a more robust, healthier environment.
While markets going up is a good thing, we recognize that it can raise some questions and concerns about whether or not positive returns can continue. Please give me a call if you would like to discuss your investments in further detail.
