(Bloomberg) — While concern has grown in the past week that narrowing market breadth has tapped the brakes on the S&P 500 (^GSPC) Index’s blistering rally, it turns out that stock bulls are still stepping in to snap up shares ahead of the Federal Reserve’s interest-rate decision.
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The index’s DVAN trend line — a proprietary divergence analysis that measures buying or selling pressure — has been on a buying streak since Election Day, with investors continuing to scoop up shares in multiple trading sessions heading into the closing bell in the past week, according to data compiled by Bloomberg. While the rally has stalled in recent days, severe weakness hasn’t emerged yet with price and breadth trends as the S&P 500 (^GSPC) sits less than 1% away from a record after 57 all-time highs in 2024.
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“We don’t have signs of bearish breadth expansion to signify a reason to turn bearish,” said Andrew Thrasher, technical analyst and portfolio manager at Financial Enhancement Group. “The lack of bullish breadth alone isn’t enough to turn negative on the market, it needs to be followed up by an expansion of bearish data to provide confirmation — and we don’t have that just yet.”
It’s a head scratcher for some, given the S&P 500 is coming off 12 straight sessions with more decliners than advancers — the longest run in Bloomberg’s data history going back to 1996, while separate data suggests this is the second-longest stretch in a century, according to Deutsche Bank AG macro strategist Jim Reid.
While that has fueled worries that the rally is stalling into year-end with fewer stocks participating in the advance, Reid told clients in a note on Tuesday that the “only conclusion you can draw from this at the moment is that there is a stealthy but steady rotation into the Mag-7 from the rest of the market.”
Leadership has flipped back to growth sectors like consumer discretionary, communication services and technology that house most of the so-called Magnificent Seven stocks, while breadth deterioration is popping up in the energy, materials and health-care groups, with each trading below their respective 200-day moving averages. When sector strength is middling, the broader index tends to struggle.
Of course, the S&P 500 has staged a furious rally in four of the past six weeks, advancing nearly 5% since Election Day. But at the same time, things have been quiet underneath the surface as the index has gone 21 sessions without a swing of more than 1% in either direction, according to data compiled by Bloomberg.
