The second aspect is the flip-side of Apple's underperformance: if the market is heading higher then something must be participating in the rise.

One of the things that has also been happening under the surface of a rising market is that other companies are starting to benefit.

This brings together another 2023 theme of ours: the broadening of the market.

You may remember this idea from last autumn. The case we made then and also, a bit more nervously (we will admit!) at the start of the year, was that, if the market continued to rise then eventually it would almost certainly have to broaden.

By that we meant the number of stocks heading higher would have to expand. it couldn't just be the Big Tech stocks of 2023. At the start of the year our case was similar but for "Generative AI" stocks.

You can read our old work here and here.

The great news for nearly everyone is that this now happening. In otherwords, it isn't just Nvidia or Microsoft leading the index higher. Other companies are rising to join Apple at a higher, more expensive valuation and also, just as importantly, because their profits continue to rise.

All the focus so far in 2024 has been on those few AI-flavored companies (or crypto) outperforming and heading "to the moon" as the kids say.

However, it has gone nearly unnoticed that many other types companies are also doing very well. The market rally is achieving better market breadth.

Market breadth in another term to talk about how many companies are partaking in a rising (or falling) market. Right now more and more companies are partaking. The S&P 500 (or the NASDAQ) is not being taken higher by just the Super 7 anymore or, just as importantly, companies associated with artificial intelligence.

Here is one way to track market breadth:

​This is the equal weighted S&P 500 which just notched an all time record. What this means is that each company is re-allocated to a fixed % of the index every quarter.

In other words, for the equal weighted index to be doing well then it can't just be the Super 7 stocks taking it higher as happened for most of 2023. Rather it must, by definition, be most companies in the index that are seeing their stock prices rise.

Another measure for this is the advance/decline number for the S&P 500. This is the number of stocks advancing (or declining) as part of the number. That number is also at an all time record.

That isn't all. Slowly but surely US small caps are beginning to outperform as well. As you may remember, these are small companies with smaller market caps (hence "small caps") than the larger companies in the S&P 500.

Over the last month these small caps in the form of the Russell 2000 have outperformed the S&P 500.

So, what are the takeaways:

• ​As we said before, beware the Super 7. One by one they are falling by the wayside of the rising market.

• For the overall market, for it to head higher, other companies must take part.

• Some of the least loved sectors and companies are now leading the way.

This should continue so long as the US economy stays robust. So far, that is looking very possible at least over the short to medium term of the next few months. Beyond that the risks start crowding in, not least the possibility of more inflation and related ate hikes.

Perhaps the best news from all this is the fact that a broader market is a more resilient market. That is what we worried about so much last summer and autumn and that concern is rapidly being side lined.

For now, small cap stocks could be useful to track as a lead on the US economy. If they begin to falter consistently - because they are often quite volatile - then that is a worrying signal for the US economy.

It could also be a sign of more interest rate increases as well. As we have argued before small cap companies only do well in very narrow windows and often in the sweet spot where growth is strong but not too strong.

That is a tough spot to stay in for long!

*******

Have questions? Care to find out more? Feel free to Download our App (!!) or reach out at contact@pebble.finance or join our Slack community to meet more like-minded individuals and see what we are talking about today. All are welcome. You can also get our newsletter as an RSS feed.