Retail sales are jumping, workers are returning to offices, and services sector businesses are ramping up for a summer surge. The market is up over 11% YTD, but we see reasons to remain bullish, one of them being widening stock participation in the rally.
Last year the 10 largest stocks in the S&P 500 (as measured by market cap) outperformed the rest of the index by 9x. The wide performance dispersion of the largest stocks in the S&P 500 was further compounded by wide sector dispersion, highlighted by robust performance in Technology and Communication Services stocks, and negative performance in Energy.
This year it’s a different story. The Energy sector is the best performing, but every sector is positive YTD and the dispersion between the energy sector and others is more inline with historical dispersion. In addition, the performance of the 10 largest stocks in the S&P 500 vs. the remaining 490 is nearly identical, further highlighting narrowing performance dispersion and broader participation in the economic recovery rally.
Bigger picture? With broader depth the overall market rally is likely 1) more sustainable, and 2) better positioned to withstand a pull-back in “hot” growth stocks, similar to what markets experienced at the end of 1Q
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