The S&P 500 index has continued its path into record territory and that may lead many investors to believe “markets” are strong and now’s the time to jump in with both feet.

“The fly in the ointment”:  Although the S&P 500 index has once again hit new all-time monthly highs, it’s done so with more stocks declining than advancing. 

That’s possible because the S&P 500 is a cap-weighted index, meaning that the biggest companies in the index carry more weight than smaller companies. 

So, for example, if 25% of the biggest companies in the index move up, while the remaining 75% of stocks are flat or move down, the index can still show positive returns. – leading investors to believe “markets are up”, when in fact, most stocks are flat or down. 

Only 15% of stocks in the S&P made new 52-wk closing highs during its most recent run at record closes.

That 15% of SPX stocks – the largest stocks in the index, are masking the truth. 

The truth is that 85% of stocks in the index are not moving higher.

It’s a bit easier to see what’s really happening with most stocks when you look at the Russell 2000 small-cap index.

As you can see, this popular market average of small-cap stocks has been trading sideways for most of the year. 

As the old adage goes, when the troops don’t follow the generals, trouble often looms ahead.  

At Rowe Wealth Management, we need to worry too much about the direction of the general stock market because our focus is on the strongest sectors in the stock market. 

Our clients are mostly positioned in:

• Clean Energy
• Leisure
• Building & Construction
• Energy Exploration & Production
• Basic Materials
• Media 

In addition to staying in the strongest sectors of the stock market, most of our clients are diversified into multiple asset classes.  We are particularly interested in the commodity asset class (specifically, energy and industrial metals).  

We are seeing pockets of strength in the select sectors mentioned above, but at the same time, many sectors of the stock market have lost their steam.

Below is a chart showing the percentage of industry groups participating in the S&P’s most recent moves.

Fewer and fewer industry groups have participated in the S&P 500’s advance to new highs. It’s been a series of lower highs.

Until we see a meaningful reversal in this chart, any move higher in the S&P should be met with skepticism. 

We’ll be keeping an eye out for any evidence of further deterioration or improvement of the sector and industry groups’ participation over the coming weeks.

We’ll be sure to keep you up to speed when the strength does come back into the broader stock market. 

Stay tuned for more, until then, invest wisely.

– Mike Rielly

PS:  It’s that time of the year again.  We are opening the doors to new investors who have investment portfolios valued over $500,000.  Is your investment advisor giving you the professional service that you deserve?  You can lock in your spot today if you’d like to schedule a free consultation with a risk management specialist at Rowe Wealth management. Click here to schedule a free consultation.

Through relative strength analysis, we uncover the strongest asset classes, sectors, and industry groups that are in uptrends and showing the potential for continued profits.

As an investor, your success and profits are often tied to your ability to adapt to ever-changing market conditions – and to the asset classes and sectors attracting the most institutional demand.

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