On June 1, CNBC reported that the S&P 500 closed at a record high on the last trading day of May. However, only 20 of the S&P 500 constituents recorded individual new highs, with just seven of those not directly related to AI.
Michael Hartnett, a strategist at Bank of America (BofA), noted in a client memo last week that there were also 20 stocks hitting new highs at the peak of the internet bubble in March 2000. He suggested that while speculative price movements are not over, this trend signals that the market may be approaching the later stages of a bubble.
The rally in May was led by semiconductor stocks, with AMD rising 46% and Micron soaring 88%. Samsung Electronics increased by 44%, while SK Hynix jumped 81%. The tech-heavy Nasdaq Composite Index also surged 25% over the two months of April and May, marking its largest two-month gain in over 20 years.
However, the limited number of stocks supporting the index's rise is concerning. The breadth of advancing versus declining stocks, known as the advance-decline line, peaked at the end of March but has been declining since mid-April. According to BCA Research, as of May 20, only about 55% of S&P 500 constituents were above their 200-day moving average.
BCA strategists stated, "While U.S. and emerging market indices have reached new highs, the rally is very narrow," adding that a weak market breadth often indicates underlying vulnerabilities within the stock market. Despite the index hitting record levels, the concentration of gains in a few stocks raises questions about the sustainability of the bull market.
Hartnett advised investors to consider shifting to defensive positions soon. He explained that historically, after bubble collapses since 1929, long-term bonds and defensive stocks, or sectors that were significantly overlooked in the late stages of a bubble, tended to perform relatively well.
* This article has been translated by AI.
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