Wednesday's Market Minute: How Will The Party End?

By some definitions, stocks are on the biggest tear of this bull market yet. Take out the energy sector and the year-over-year change in the S&P 500 is the biggest since the very beginning of the rally, when the global economy was exiting the great financial crisis, according to the bears at Crescat Capital. Forward valuations in the Nasdaq have surpassed their frothy peak of Jan. 2018, and the relative strength of the S&P 500 is hanging out around levels unseen since then.

The number of companies trading above their 200-day moving average is also at the highest level since that last melt-up two years ago that ended with an historic explosion of volatility. Are we headed for the same? If momentum keeps building, probably yes. The major trend shift we highlighted on our programming in early December was the breakout from an 18-month-long downtrend in valuations and high-beta stocks, both of which were trending with lower highs despite index records.

That’s accelerated lately as Tesla Inc TSLA, Beyond Meat Inc BYND, Canopy Growth Corp CGC, and other volatile, high-risk stocks post monster gains. But these stocks do wild things, and may not be the best signal for when the tide is turning. The better tell will likely come from semiconductor stocks that are not only in the high-beta category, but tied to major economic themes and were the ones who really blasted off first.

Image by igormattio from Pixabay