U.S. stock market has 'never been healthier' according to this key measure

By Joseph Adinolfi

More stocks outperformed the S&P 500 over the past three months than at any time on record, according to Charles Schwab strategist

A lot has changed in the U.S. stock market over the past three months, but one of the most notable developments is the dramatic improvement in the number of stocks outperforming the S&P 500 index.

Heading into July, the large-cap index had been dependent on a small group of companies for most of its year-to-date advance.

Artificial-intelligence darling Nvidia Corp. (NVDA) was perhaps the most notable. According to data cited by some analysts, this one stock had been responsible for roughly one-third of the S&P 500's advance during the first half of the year.

Data cited by Boston Partners showed that the Nvidia and the rest of the Magnificent Seven - a group of elite megacap stocks - had contributed nearly 60% of the index's gain.

Fast forward to the end of September, and things were looking a lot different. The number of individual stocks outperforming the S&P 500 on a roughly three-month trailing basis had risen sharply from around 20% in early July to just shy of 70% as of the end of September, the highest level going back to at least the early 1990s, what Kevin Gordon, a senior investment strategist at Charles Schwab & Co., described as the highest on record.

By this measure, the stock market has seldom been healthier, said Mark Hackett, chief of investment research at Nationwide. He told MarketWatch that four things were converging to push stocks higher: breadth, sentiment, momentum and an improving economic backdrop.

"There's a lot to like about the market right now in terms of the way its behaving," he said during an interview.

"This tells me there's something underneath that's very powerful, the percentage of companies beating the S&P 500 is at a record high, you had the Fed rate cut at the same time as China is putting stimulus in play."

"If you were a hedge fund right now, what would be your driving force to go short?"

As of Friday morning, the S&P 500 was sitting on a calendar-year gain of 19.6% for 2024. And if the past is any guide, the index will likely continue to climb during the fourth quarter, which has historically been the best period of the calendar year for stock-market returns.

See: U.S. stocks' remarkable 2024 run is likely to continue during the fourth quarter, history shows

U.S. stocks were trading mixed on Friday, as the S&P 500, Nasdaq Composite and Dow Jones Industrial Average saw early gains ease following a strong September jobs report.

The S&P 500 SPX was up 17 points, or 0.3%, at 5,717 in recent trade, while the Nasdaq Composite COMP was up 108 points, or 0.6%, at 18,026.

The Dow was up 52 points, or 0.1%, at 42,065 after briefly dipping into the red.

-Joseph Adinolfi

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10-04-24 1147ET

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