S&P 500 Breadth Bodes Well for Stocks
Sat Jan 31, 8:40 AM ET Add Business - Reuters to My Yahoo!
By Nick Olivari
NEW YORK (Reuters) - Stock investors seeking further evidence that the bull market is getting stronger are keeping a close eye on breadth -- advancing issues over declining ones -- within the Standard & Poor's 500 index (^SPX - news).
The breadth on the index is at its highest since at least 1980, higher even than when the tech bubble was blowing through Wall Street in 1998 and 1999, sending the S&P 500 to record highs on almost a weekly basis.
Investors are buying on expectations of solid earnings growth and the sustainability of the economic recovery, betting that those fundamentals are going to stay in place for the foreseeable future.
"It's a sign of things to come," said Andrew Valerie, equity strategist at Boston-based Linsco/Private Ledger, of the number of stocks rising over those giving ground. "I'm not on a soap box screaming 'Dow 20,000,' but a year of solid earnings growth and a lot of sectors will benefit from years of cost cutting."
Market breadth is typically gauged by looking at the entire universe of an index or market and comparing rising issues to falling, which helps minimize the influence of large-cap stocks.
But with small- and mid-cap stock indexes at all-time highs, investors are looking at large-cap stocks to take the rally further. The S&P 500 is still 26 percent from its March 2000 peak.
A VERY GOOD YEAR
Some 458 issues in the S&P 500 gained in 2003 compared with 41 that declined, according to Howard Silverblatt, market equity analyst at S&P, a division of The McGraw-Hill Companies. (NYSE:MHP - news) In 1980, the earliest year for which S&P has data, 353 companies gained, while 144 lost value.
"We have had a significant rally off those seemingly oversold values," said Tim Ghriskey, a money manager with Ghriskey Capital Partners LLC. "And once the dollar stops weakening, we should attract foreign capital, which tends to go straight to large-cap stocks -- furthering the rally."
By way of comparison, gainers for 1998 numbered 289, with 206 stocks falling. In 1999, the year before the major indexes peaked, the bears were already present, with just 241 issues advancing compared with 256 losers.
In 2004, through Tuesday, 330 issues were up, with 167 down.
That's not as good as 2003, but it's still respectable when compared with the monthly number for January of 2003 -- just 163 gainers and 335 decliners. In fact investors are enjoying the best January in at least five years, according to S&P.
Linco/Private Ledger's Valerie said the length of time into the rally is also important.
"Early in a recovering market is not quite the same as January to March of 2000 when we had a tired market," Valerie said. "I expect the market is getting a little frothy and we are in for some type of pause."
The running total of advancers over decliners on the Big Board since Nov. 1, 1993 is now also at its highest since July 1998, according to data supplied by the New York Stock Exchange (news - web sites).
Paul Mendelsohn, chief investment strategist at Windham Financial Services Inc., notes this particular technical indicator, has been gaining steadily since a bottom in 2002.
"That tells you how broad this rally has been," said Paul Mendelsohn.
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