The broadest rally in U.S. stocks since at least 1990 has lifted shares of everything from the smallest companies to the biggest banks, signaling the bull market for America’s largest corporations will last at least until the end of the year, if history is a guide.
The Standard & Poor’s 500 Index’s advance to a record last week coincided with highs in the Russell 2000 Index of smaller companies, the Dow Jones Transportation Index, the S&P 500 Financials Index and a gauge of economically sensitive equities overseen by Morgan Stanley. Since 1990, the S&P 500 has gained for six months on average after those measures peaked, according to data compiled by Bloomberg.
While bears say the breadth shows indiscriminate buying just as profit growth slows and the Federal Reserve prepares to curtail stimulus, gains across stock measures have proved an accurate forecaster of performance. In four market tops during the last 23 years, small-cap stocks and the cyclical gauge never peaked after the S&P 500.
“It is pretty broad slice of America you are looking at,” John Manley, who helps oversee $222.7 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a July 17 phone interview. “What that is saying is that you have an economy that is improving somewhat, but the market has not been hyper-extended and the Fed is still accommodative. What’s not to like about that?”
U.S. stocks rose for a fourth week, pushing the S&P 500 up 0.7 percent to 1,692.09 and bringing this year’s gains to 19 percent, after Fed Chairman Ben S. Bernanke said there was no fixed schedule for ending the program of bond purchases known as quantitative easing. Delta Air Lines Inc. and Morgan Stanley led transport and financial shares, climbing at least 5 percent. The S&P 500 gained 0.1 percent to 1,693.51 at 9:39 a.m. New York time today.
More than $1 trillion has been restored to share values as markets recovered after Bernanke’s warning that stimulus may slow sent the S&P 500 down as much as 5.8 percent between May 21 and June 24. The index is up 150 percent since March 2009 amid a doubling of corporate earnings.
Gains in small-caps, banks, transportation companies and cyclical stocks suggest the rally isn’t over, according to Doug Ramsey, the Minneapolis-based chief investment officer of Leuthold Group LLC, whose firm oversees $1.7 billion and recommended buying equities in March 2009.