Sure, we’re in a bull market – but it’s far too narrow.
Anyone who’s been reading the financial press has heard that complaint ad nauseam this year.
The idea is this…
Yes, this market rally – which has sent the S&P 500 Index soaring 58% since October 2022 – is impressive by historical standards. Yet it has been led by a tiny group of mega-tech stocks associated with AI technology, with little in the way of gains outside of that elite group.
Worse, that narrowness sets the market up for a major correction.
One earnings miss by, say, chipmaker Nvidia (Nasdaq: NVDA) – which is up a whopping 166% this year alone – could take this whole house of cards down with it.
(In fact, Nvidia is already down 10% over the past week.)
There is certainly some truth to this depiction of the bull market. But the reality is much more nuanced – and the outlook far more positive – than the naysayers would have you believe.
The Other 493
The “Magnificent Seven” stocks have outperformed the rest of the S&P 500 since the rally started. As a group, they are up about 120% since the bull market began.
But exclude those seven leaders and we’ve still got a healthy rally, as the other 493 stocks in the index are up almost 40% since October 2022.
And if earnings are any indication, that’s set to continue. Right now, it’s projected that the S&P 500 collectively will achieve year-over-year earnings growth of 9.3% for the second quarter (earnings season began in earnest last week). That would mark the fourth consecutive quarter of earnings growth, and the best growth in more than two years.
It gets better…
Companies typically outperform earnings expectations, so FactSet expects the actual number to be around 12% – which is truly impressive bottom-line growth for the S&P 500.
Here’s a chart of S&P 500 earnings estimates and actual results going back to mid-2020. You can see that earnings estimates, and final results have been improving for several quarters…
And earnings are absolutely critical to share prices. In fact, in the longer run they are the single most important indicator of where a stock’s price will go.
So the data tells us that companies and sectors far outside the Magnificent Seven are thriving. And should continue to do so as long as earnings growth continues.
A Thriving Portfolio
For more specific proof of the broadness of this bull market, let me point to our Profit Accelerator Portfolio in The Oxford Communiqué Pro.
This is a diverse group of stocks that ranges far beyond the AI mega-cap boom (though there are a several of companies in the portfolio that are benefiting from investor enthusiasm for AI).
Here are just a few of the stocks in the portfolio…
- A midstream energy company operating in the massive Permian basin that has doubled in value since we got into it.
- A rapidly-growing cloud computing firm that is also up more than 100% for us.
- An asset manager with more than $630 billion in assets under management… and growing.
- A blue-chip chip manufacturer that’s up 15% in two months for us.
- A provider of data center infrastructure (a pick-and-shovel play on the AI boom).
- A wholesaler that’s up 54% over the past year.
- And a Latin American e-commerce and fintech leader that has soared in recent weeks.
That diversity demonstrates that the bull market is far broader than many believe.
To be sure, smart investors won’t overlook the performance of the Magnificent Seven stocks.
But the savviest of investors will look beyond those firms and see the performance and ongoing potential of a more diverse set of stocks like those in our Profit Accelerator portfolio. If you’re interested in learning more about this portfolio, go here.
And as always,
Invest wisely.
Matt