There has been a fair amount of nervous chatter lately about the state of the stock market. It’s true that market leadership is narrow and a handful of tech and artificial intelligence names account for most of this year’s gains for the S & P 500 and the Nasdaq Composite — and the indexes’ recent runs to all-time highs. But it’s also true — at least for now — that this narrow leadership doesn’t really matter. This is a bull market, and it is a world beater. The gains in U.S. markets surpass many of those in developed and emerging markets around the globe. As of Thursday’s close, the S & P 500 was up about 15% in 2024, while the Nasdaq Composite was just shy of 19%. That’s a full year’s worth of gains in about six months. Those advances come after the S & P 500’s total return topped 26% in 2023. Bubbles of the past vs. today Some observers are drawing comparisons to 1999, when the market surged at the height of the dot-com bubble. Companies like Microsoft , Cisco Systems and Intel were among the biggest gainers in the S & P 500. To be sure, the most richly valued stocks today account for a greater share of the S & P 500’s market value than they did in 1999. It’s also true that today’s dominant stocks are in better financial shape, and they are growing more quickly than their highly capitalized counterparts of more than two decades ago. It’s also true that market breadth has narrowed beyond just concerns about concentration. Further, the S & P 500 Equal Weighted Index , with a roughly 4% gain in 2024, is far underperforming its capital-weighted counterpart. .SPXEW .SPX YTD line The S & P 500 Equal Weighted Index vs. the S & P 500 in 2024 Having said that, in years past, these types of divergences would worry me to the point of distraction. In 1999, I was delivering commentary about the risks of an imminent market collapse as the dot-com bubble had inflated to a size rarely seen in stock market history. The alarm bells that rang in my ears in 1999 and sounded again in 2007 amid the real estate and credit market bubbles aren’t going off today — at least not yet. Different circumstances this time With both interest rates and energy prices reasonably well-behaved, the economy remaining resilient and inflation rates ebbing, it’s hard to get terribly bearish. This is especially because the next interest rate move by the Federal Reserve is more likely to be a cut rather than a hike. The dot-com and housing bubbles were burst as the Fed aggressively raised interest rates. That approach to policy also helped spur a bear market in 2022 when the S & P 500 slid 19% and the Nasdaq Composite dropped 33%. I have friends who complain that the market has become irrational with respect to the enthusiasm for AI-related plays. Nvidia is leading that charge, up nearly 160% in 2024. On Tuesday, its market cap grew to $3.34 trillion, and the chipmaker briefly overtook Microsoft to become the most valuable stock. I understand that a lot of folks are worried that this is a bubble akin to the internet mania that launched in the 1990s. But I don’t see all of the signs of public fascination, be it hundreds of AI-related initial public offerings or distant relatives ringing me up to ask if it’s the right time to buy a single stock. Naturally, it is prudent portfolio management to take some profits in names that have run so far, so quickly. Portfolio rebalancing also ensures that no single stock has an undue influence on long-term performance, and it’s common sense. Further, while it’s true that many analysts are now raising their price targets on individual stocks and on the market averages — often a contrary indicator — sometimes the crowd is right. It’s a bull market until further notice, and it’s probably still too early to take all your chips off the table quite yet. — CNBC contributor Ron Insana is CEO of iFi.AI, an artificial intelligence fintech firm.
Ron Insana: Never mind the narrow leadership. This is a powerful bull market
Jun 21, 2024
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