They say better late than never.
With the Dow Jones industrials index crossing the 19,000 level for the first time on Tuesday, many investors are wondering if it’s too late to join in on the fun. After all, small-cap stocks are also enjoying their best surge in 20 years, up 13 days in a row. And many were caught out by the intense selling that hit bonds and bond-like stocks in the wake of president-elect Donald Trump’s surprise victory.
The good news is, you can still get into this party. You just have to know where the bargains remain.
That’s exactly the theme in play on Wall Street this week as the relatively narrow area of the stock market that led the post-Trump surge to new record highs -- small-cap stocks, materials, industrials and financials -- are getting help from areas that initially stumbled.
I’m talking about the sectors that were particularly sensitive to the surge in interest rates on expectations Trump’s fiscal stimulus plans would boost both GDP growth and inflation. They include areas like telecoms, utilities and real estate investment trusts (REITs). Energy stocks should also be on the list here because crude oil fell on the U.S. dollar’s immediate post-election strength.
Their lack of initial participation resulted in worryingly narrow measures of market breadth -- a sign that the Trump rally was supported by a small group of stocks rallying to the upside.
As a result, the percentage of S&P 500 stocks in uptrends has increased to just 62 percent from a low of 50 percent at the beginning of the month. But that’s still well below a high of 76.8 percent in early September and a year-to-date high of 79 percent in March.
One would expect a better showing considering the major stock averages are all notching new record highs in unison for the first time since December 1999.
But change could be afoot as investors widen their buying interest, a sign that recent rally could have legs as Wall Street enters a period of historical seasonal strength. Bespoke Investment Group noted that the S&P 500’s median return from the close on Nov. 21 through Dec. 5 over the last 10 years has been a gain of 1.3 percent, with a positive result 90 percent of the time.
Other optimistic indicators include a reopening of the corporate share-buyback window as the better-than-expected third-quarter earnings season wraps up.
Signs abound that the uptrend is strengthening. The 20-day moving average of the NYSE advance-decline line -- a medium-term measure of market breadth -- crossed back into positive territory on Tuesday for the first time since early October. And the McClellan Summation Index -- a long-term measure of market breadth -- is moving into an uptrend for the first time since July.
For late arrivals, keeping in mind the ongoing caveat that risks remain high given the uncertain policy success of the incoming Trump administration, the focus should be on stocks in the sectors now joining the rally, including ExxonMobil (XOM) and AT&T (T).