You can usually tell pretty quickly who’s actually paying attention to this market and who’s just repeating what they heard on TV. Just ask them how many stocks are participating in this bull market.
Because if you listened to most of the commentary over the past year, you’d think only a handful of stocks were carrying this entire market.
Meanwhile, the equal-weighted S&P 500 just closed at an all-time high. The equal-weight Nasdaq 100 closed at an all-time high, too. Same thing for the equal-weight Dow Jones Industrial Average:
In other words, the average stock inside the most important indexes in the world has literally never been stronger.
That’s not narrow leadership. That’s broad participation.
And I think investors continue to underestimate how important that distinction really is.
When the average stock is making new highs simultaneously across large-cap growth, old-school industrials, and the broader S&P universe, that tells us demand for equities is much deeper than people assume.
This isn’t just a handful of mega-cap names masking weakness everywhere else.
If that were true, equal-weight indexes would be lagging badly. Instead, they’re leading the conversation if you’re willing to look.
Historically, markets making new highs tend to continue making new highs. We already know this. The data is overwhelming.
Buying strength has consistently produced better outcomes than trying to play hero and catch falling knives.
That’s why I’ve always hated the phrase “buy low, sell high.” It sounds clever, but markets rarely reward investors for buying weakness simply because something looks cheaper than it used to.
Strong trends tend to persist. Momentum tends to cluster. Leadership tends to continue leading.
The goal isn’t to buy low. The goal is to buy right.
Most people spend their lives trying to predict turning points. I’d rather just own the stocks already proving themselves.
Summer That Was Supposed To Be Weak
What makes this environment even more interesting is the timing.
We’re entering the summer months now. Every year around this time the “sell In May and go away” crowd starts making the rounds again like clockwork.
Financial TV loves it because it’s catchy and sounds actionable. Investors love it because it gives them something simple to repeat at barbecues.
The problem is the market never promised to cooperate with cute slogans.
May was strong. Really strong.
The Nasdaq 100 is up more than 10% in May on both a market-cap weighted and equal-weight basis.
In other words, the index driven by the biggest mega-cap names is up over 10%, and so is the version where every stock gets an equal vote regardless of size.
When markets perform well during periods where they’re supposedly vulnerable, I pay attention to that. Historically, one of the characteristics of healthy bull markets is their refusal to go down when conditions appear perfectly set up for weakness.
Think about how many reasons investors had to get defensive recently. Rates ripping all over the world. Geopolitical tensions still exist.
Depending on what time you turn on CNBC, apparently we’re either entering a recession, overheating into inflation, collapsing into deflation, or replacing all human labor with robots by Thursday afternoon.
Yet stocks keep getting accumulated.
That’s the part that matters.
You can feel however you want emotionally about valuations or monetary policy or AI or politics or any of the other endless debates happening online.
The market still gets the final vote, and right now the weight of the evidence continues to point toward demand overwhelming supply.
Price is the only thing that pays.
And prices continue to behave very well.
Memorial Day Futures
I spent Memorial Day up at the lake with my family, fully leaning into Dad Mode.
We were pulling kids on tubes, trying to knock each other off the raft, grilling burgers and hot dogs, and watching boats cruise by with American flags hanging off the back.
The whole thing felt about as American as it gets.
Of course, markets never really close. Futures are trading overseas while everybody here is at the lake pretending not to check their phones.
So every once in a while, I’d sneak a peek just to see what was going on around the world before going right back to getting attacked with pool noodles by a bunch of tiny humans.
Memorial Day hits differently once you have kids. I’ve got twin three-year-olds and a five-year-old, so trying to explain the meaning behind the holiday usually competes with somebody crying about ketchup or cannonballing into the water mid-conversation.
But I still try. I want them to understand that the freedoms we enjoy are not accidental. There are people who sacrificed for those freedoms long before any of us got here.
Honestly, sitting there watching the kids play while markets traded halfway across the world, I found myself feeling grateful for a lot of things all at once.
Grateful for family. Grateful for health. Grateful to live in a country where we have the freedom to build businesses, allocate capital, take risks, fail publicly, succeed publicly, and participate in the greatest financial markets the world has ever seen.
I was also grateful for the opportunities that come from the gap between perception and reality.
Last month in New High Bad Vibes, we talked about how terrible sentiment remained even as stocks kept ripping to new highs. That divergence is still here.
People continue telling you this market is only a few stocks. They keep telling you participation is weak.
Meanwhile, the average stock has nearly doubled the return of the Magnificent 7 this year.
That’s not a side note. That’s the story.
This newsletter is called Everybody’s Wrong because at any given moment, everybody is wrong about something. That’s where the opportunities come from. My job is to identify those disconnects when they show up and point them out before the crowd catches on.
That’s what I’m doing today.
Because while everybody argues about what should be happening, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are all sitting at all-time highs as summer officially begins.
And underneath all of it, the average stock is outpacing the behemoths everyone thinks are carrying this market
Most people still have no idea.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs