As Stocks Rose to All-time Highs After the February Inflation Report, S&P 500 Breadth 'Stunk'

According to Bespoke Investment Group, Tuesday's robust surge in the U.S. stock market, spurred by an inflation report, exhibited concerning breadth, indicating investors' keen interest in observing the S&P 500 for indications of a broadening rally.

‍

Bespoke remarked in a note on Wednesday that despite the market's rally, breadth, which gauges the difference between advancing and declining stocks, was lackluster. Specifically, the S&P 500 witnessed a net of only 78 advancers on Tuesday, amidst a sharp 1.1% climb, with 48 of these advances occurring in the technology sector.

‍

On Tuesday, the S&P 500 achieved an all-time high, marking its 17th record close of 2024 and its most substantial daily percentage gain since February 22, as reported by Dow Jones Market Data. This rally ensued as investors absorbed eagerly anticipated fresh inflation data for the previous month.

‍

Yardeni Research noted in a Tuesday report that February's inflation, as measured by the consumer price index, surpassed expectations slightly. However, this didn't dampen investors' enthusiasm for AI-related stocks.

‍

Simultaneously, Treasury yields experienced an increase on Tuesday, with the yield on the 10-year note rising by 5.1 basis points to 4.154%, marking its most substantial gain since February 16, based on 3 p.m. Eastern time levels, according to Dow Jones Market Data.

‍

As of Wednesday afternoon trading, the S&P 500 has risen by 8.5% year-to-date, including a 1.5% gain thus far in March, according to data.

In February, the S&P 500 witnessed a rally with narrow breadth, with just four megacap companies—Nvidia Corp., Meta Platforms Inc., Amazon.com Inc., and Microsoft Corp.—contributing 45% of its total return for that month, according to BofA Global Research.

‍

Tech and communication services have emerged as the best-performing sectors in the S&P 500 this year by a considerable margin, each registering around a 12% increase based on Wednesday afternoon trading levels. Financials have recorded the next highest gain so far in 2024, reaching almost 9%, according to data.

‍

Notably, the surge in shares of prominent tech companies has significantly contributed to the S&P 500's overall gains, with Nvidia's stock soaring by approximately 82% year-to-date as of Wednesday afternoon. The chip maker, benefiting greatly from investor enthusiasm surrounding artificial intelligence, surged by 7.2% on Tuesday.

‍

Given the S&P 500's market-capitalization-weighted nature, it exhibits considerable exposure to companies with substantial market values like Nvidia. Conversely, an equal-weighted version of the index has lagged behind this year.

‍

The Invesco S&P 500 Equal Weight ETF, which equally distributes weight among all stocks in the index, has recorded approximately a 5.6% increase year-to-date, according to FactSet data from Wednesday afternoon. However, the fund's gains have trailed those of the Vanguard S&P 500 ETF by around 3% in 2024.

‍

Major U.S. stock indexes displayed mixed trading on Wednesday afternoon, with the S&P 500 remaining relatively flat, the Nasdaq Composite down by 0.2%, and the Dow Jones Industrial Average up by 0.3%, according to data.

‍

Concurrently, the yield on the 10-year Treasury note rose by approximately three basis points on Wednesday afternoon, reaching around 4.19%.

‍