The S&P 500 reached a new closing high on the last trading day of May, but few stocks drove the index higher. Foreign media cited Bank of America strategist Michael Hartnett, noting that this market structure resembles the conditions seen at the peak of the 2000 dot-com bubble.
Only 20 stocks are simultaneously reaching new highs.
Bank of America noted that when the S&P 500 closed at a record high last Friday, only 20 components simultaneously reached their own individual highs. Hartnett believes this resembles the pattern seen at the peak of the dot-com bubble in March 2000, when only 20 stocks made new highs while the market was at elevated levels.
This rally was primarily driven by AI-related sectors, particularly semiconductor and memory chip companies. The report noted that AMD, Micron, SK Hynix, and Samsung Electronics have seen significant recent gains, with capital clearly concentrated among a few leading tech and chip companies.
The gains were concentrated in AI and chip stocks.
The Nasdaq Composite Index rose 25% over the two months of April and May, marking one of its strongest two-month performances in over two decades. However, several institutions believe that the index's strength has not translated into broad-based gains across individual stocks, and market breadth remains weak.
Oppenheimer technology analyst Ari Wald stated in a report on May 23 that, following a rapid rebound in early April, market internals have failed to keep pace with index performance. The advance-decline line rose toward the end of March but has declined since mid-April.
Institutional alert: defensive signal
BCA Research data shows that, as of May 20, only about 55% of S&P 500 components were trading above their 200-day moving average. The firm believes that, despite U.S. and emerging market indices reaching new highs, the breadth of the rally has been very narrow, and weak breadth often indicates underlying weakness in the market.
Hartnett recommends in his report that as the market approaches its peak, investors should consider gradually shifting toward defensive assets. Reviewing the performance following multiple bubbles since 1929, he notes that after bubble bursts, long-term bonds and defensive sectors—or those that significantly underperformed during the later stages of the bubble—tend to attract greater investor interest.