A key indicator shows that the US stock market has "never been healthier"!
The U.S. stock market has shown significant improvement in the past three months, with the number of stocks outperforming the S&P 500 Index rising from 20% in July to nearly 70% by the end of September, hitting a historical high. Analysts point out that the market's healthy condition is driven by improvements in breadth, sentiment, momentum, and economic background. Rate cuts by the Federal Reserve and stimulus measures in China have also provided support to the market. September's non-farm data indicates a strong U.S. economy, with job additions exceeding expectations, a slight decrease in the unemployment rate, further solidifying the market's optimistic sentiment
In the past three months, many changes have occurred in the US stock market, but one of the most noteworthy developments is the significant increase in the number of stocks outperforming the S&P 500 index.
By July, large stock indices were largely driven by the gains of a small group of companies for the overall rise so far this year.
NVIDIA, the darling of the artificial intelligence field, may be the most prominent example. According to data cited by some analysts, this stock contributed about one-third of the S&P 500 index's gains in the first half of the year.
Data from Boston Partners shows that NVIDIA, along with the so-called "Seven Giants," contributed nearly 60% of the index's gains.
Fast forward to the end of September, the situation looks drastically different. Based on tracking for about three months, the number of individual stocks outperforming the S&P 500 has surged from around 20% in early July to nearly 70% by the end of September, reaching the highest level since at least the early 1990s, described by Kevin Gordon, Senior Investment Strategist at Charles Schwab & Co., as historically high.
Mark Hackett, Chief of Investment Research at Nationwide, stated that according to this indicator, the stock market has never been healthier. In an interview, he said that four factors are coming together to drive US stocks higher: breadth, sentiment, momentum, and an improving economic backdrop.
He said in an interview, "From the current market performance, there are many positives. This tells me that there is a very strong force behind it. The percentage of companies outperforming the S&P 500 index has reached historically high levels, while the Fed is cutting rates and China is also introducing stimulus measures."
He asked, "If you are a hedge fund manager now, what motivation do you have to go short?"
If history is any guide, the S&P 500 index is likely to continue climbing in the fourth quarter, which historically is the best period for stock market returns.
The September non-farm data in the US indicates that the US economy remains strong, which is another positive for US stocks. The addition of 104,000 more jobs than expected highlights the resilience of the labor market and may ensure a more cautious pace of rate cuts by the Fed.
The unemployment rate also dropped from 4.2% in August to 4.1%; after several months of negative revisions to previous employment data, the job growth data for July and August was revised upward by 72,000 people.
Lindsay Rosner, Managing Director of Multi-Asset Investments at Goldman Sachs, said: "Last Friday's non-farm data was a grand slam, with strong positive revisions to employment data and a decline in the unemployment rate. The economy is entering the peak season steadily."