Bear market is coming? Charles Schwab issues a warning, US stock market trend remarkably similar to the previous crash before
Charles Schwab issued a warning, stating that the current stock market scale is starting to resemble that of 2021, which is "alarmingly similar" to the situation before the last crash. Chief Investment Officer Liz Ann Sonders pointed out that the increasing divergence between index levels and individual stock performance is a risk worth noting. Although the S&P 500 index has experienced a maximum decline of about 5% this year, individual stock declines are more significant, with the situation being worse for the Nasdaq index. Charles Schwab stated that the current market bull run is highly concentrated in a narrow stock sector, thanks to the second beneficiary of the artificial intelligence boom and the country's energy network construction
According to the Zhitong Finance and Economics APP, Charles Schwab wrote this week that the current stock market size is starting to resemble the situation in 2021, the year before the most recent bear market adjustment.
In its latest commentary, the firm has focused on the increasingly serious inconsistency between index levels and individual stock performance. Chief Investment Officer Liz Ann Sonders wrote that the widening divergence will only become more extreme, posing a risk worth paying attention to.
She wrote: "If we continue to see more weakness in the former and more strength in the latter, it will start to frighteningly mimic the dynamics of 2021."
She pointed out that despite the S&P 500 index hitting consecutive all-time highs this year, the proportion of stocks trading above the 50-day moving average has declined.
"This was the case in the second half of 2021, in hindsight, correctly signaling that the market would no longer be able to sustain at the index level, leading to a bear market in 2022," Ann Sonders said.
The benchmark index fell by about 25% that year, only recovering in 2023.
While the S&P 500 index saw a maximum decline of about 5% this year, the average decline of index component stocks reached 15%. Charles Schwab stated that the situation for the Nasdaq index is even worse, with the median decline of individual stocks in the index at 38%.
As of last Friday, less than 10% of stocks listed on the S&P and Nasdaq had hit 52-week highs. The report added that at the same time, the number of stocks hitting new lows is at bear market levels.
The best explanation for this bull market at the index level is highly concentrated in a narrow stock sector, with beneficiaries of artificial intelligence leading the way. However, Ann Sonders pointed out that these stocks are not necessarily the largest, even though the market often focuses on top tech giants.
She wrote: "Among the top 10 performing stocks this year, 3 are not tech stocks but utilities, which may surprise some people." This can be attributed to the second beneficiary of the artificial intelligence (AI) boom and the construction of the country's energy network."