MEDIA

The Bar Gets Raised

August delivered a milestone that took most of the summer to arrive. Both the capitalization weighted and the equal weighted versions of the S&P 500 reached record territory in the same week, joined by value, growth, mid caps and small caps. The mega cap heavy Nasdaq 100 is still a few percent short, as are semiconductors and transports, but the holdouts are now the minority.

The pattern is not confined to the United States. Europe’s broad benchmark closed at a record earlier this month, with the German, French and Italian indices each setting highs of their own, and Japan has been the standout, with both of its major indices touching records in recent days. For clients who kept meaningful international exposure through a long stretch of American leadership, this year has offered some reward for the patience.

That spread matters more than the headlines themselves. For much of the past two years, records rested on a narrow group of very large companies. This advance is wider. Just over 70 percent of S&P 500 constituents trade above their 200 day moving averages, a level not seen in more than a year, and the average stock has been outpacing the largest ones since early summer. Broad participation tends to describe a healthy market rather than warn about one.

Earnings have supported the move, with beat rates on profits and revenue running well above their ten year norms. The share of companies raising forward guidance is roughly double its long run average, and that is where we would register our one note of caution. Guidance raised at twice the usual rate resets the bar for the quarters ahead, particularly in technology and health care. Expectations pulled forward are harder to clear, and disappointment in a fully valued market is repriced quickly. We remain cautious that a higher bar is harder to clear, but optimistic that a broadening market is a healthy market.