The Number of U.S. Stocks Hitting Fresh 52-Week Highs Has Fallen Since June

< StockMarketNews.Today > … U.S. stocks are hovering near record levels but many are struggling to break out of a narrow trading range to hit new highs. One reason: Fewer individual stocks are contributing to the rally.

The number of stocks hitting 52-week highs has fallen since June—when the S&P 500 kicked off its last successful run at a record. Last week, 106 firms in the index set new 52-week highs, down from 293 in mid-June, according to FactSet.


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The lack of breadth in the stock market is concerning to some analysts who note the S&P 500 has broken out to fresh highs three times since early 2018, but each rally was short-lived. That marks a divergence from 2013 and 2017 when stocks notched a series of new highs in the wake of strong bouts of volatility.

The broad stock-market index is within 2.1% of July 26’s record—it has rallied 18% this year to 2961.79 but is up just 1.6% from a year ago following last fall’s brutal selloff.

“Investors are concerned that this is another breakout that won’t last,” said Frank Cappelleri, executive director at brokerage Instinet. “Violent back-and-forth stock moves shake investor confidence, which causes doubt for the next breakout to work.”

After growing fears of a potential U.S. recession rocked financial markets in August, the S&P 500 has done an about-face in September, rising 1.2%. The latest leg up coincides with the biggest rotation out of high-momentum stocks and into value shares since the financial crisis.

Investors have been selling higher growth technology companies including the popular FAANG stocks— Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google parent Alphabet Inc. —that have propelled the decadelong bull market.

They are opting instead for beaten-down value stocks, often defined as companies whose shares trade at a low multiple of their book value, or net worth. That includes energy and financial stocks that have underperformed the broader market in recent years.

“With fewer stocks hitting new highs, the question is: Has the market been using bond-proxy sectors as leadership stocks, or is the low interest rate environment keeping other sectors like financials back that have a bigger punch?” Mr. Cappelleri said.

Some analysts and investors said the recent rotation out of momentum shares is a sign that major averages are vulnerable to a pullback. Technology giant Microsoft Corp. , network-equipment maker Cisco Systems Inc. and software company Oracle Corp. were among companies hitting fresh records earlier this year but are now struggling to reclaim their highs. Those stocks have lost 2.6%, 14% and 7.5%, respectively, since the S&P 500 peaked in July.


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Meanwhile, safety stocks in sectors including consumer staples, utilities and real estate have led this month’s rally. Retail titan Walmart Inc., consumer-goods giant Procter & Gamble Co. , utility holding company American Electric Power Co. and cellular-tower firm American Tower Co. each hit new highs in September. All four stocks climbed at least 4.8% since late July.

The latest rally has been largely driven by easing monetary policy from the Federal Reserve and signs of a firming U.S. housing market. But those factors haven’t dispelled worries about the U.S.-China trade spat and a slowdown in corporate earnings that threaten to upend the bull market.

The S&P 500 has struggled to stay above 3000, a key resistance level. Investors will be awaiting the outcome of the next round of trade negotiations in October and monitoring third-quarter earnings reports—which are expected to show another quarter of lower profits—in the coming weeks. Analysts will also be watching Friday’s labor-market data for further indications on the health of the economy after Fed officials earlier this month were split over the outlook for further interest-rate reductions.

“The stock market has grown dependent on low interest rates, but rates that continue to decline suggest that the global economy and perhaps the U.S. economy is losing some traction,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co. “With the Fed and other central banks running out of bullets, it’s less support for the market and that could be another headwind for stocks to overcome.”

Data has remained decidedly mixed. Recent housing figures have pointed to a firming U.S. economy, while consumer spending has remained robust. At the same time, manufacturing activity has eased, hiring slowed in August and consumer confidence slid this month.

Still, some analysts and investors remain optimistic on the latest run for stocks and argue a long period of sideways trading often presages a sharp move higher.

“Historically, markets that have gone nowhere like the S&P 500 has the last 18 months have typically resolved with a big upside move,” said Thomas Lee, managing partner and head of research at Fundstrat Global Advisors.

Technical indicators have turned bullish after flashing red this summer. About 68% of the companies in the S&P 500 are now trading above their 50-day moving averages, up from less than 25% when the broad index came under pressure in early August.

Indicators tied to the U.S. economy have also rebounded. The gap between short- and long-term Treasury yields, known as the yield curve, has stabilized after inverting this summer, easing concerns about the direction of the economy.


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Some investors point to signs of improving market breadth as an encouraging sign. The NYSE advance-decline line, a popular indicator that tracks the number of stocks rising minus the number falling each day, hit a fresh high Sept. 23, according to Dow Jones Market Data.

“If it’s really a strong market and we see broad participation across both value and growth stocks, then that’s what’s going to push major averages to new highs,” said Nick Giacoumakis, president and founder at New England Investment & Retirement Group Inc. “But it’s going to be harder to sustain when it’s led by more defensive plays.”


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