The S&P 500 is closing in on records again.
The benchmark index is closer than ever to recapturing its February peak at less than 2% from highs.
More is happening underneath the surface than meets the eye, according to Mark Newton, founder of Newton Advisors.
“The market can push up to all-time by territory,” Newton told CNBC’s “Trading Nation” on Wednesday. “A couple different charts to put things into perspective — one is the Russell 3000, which is 98% of all investable stocks, and that’s about 3% off the highs. There’s really no resistance between current levels and February peaks. The weekly charts maintain good momentum.”
“We’ve actually seen some broadening out in the ground in the last month. Sectors like discretionary, industrials and health care, they’re all coming in to bail out technology,” said Newton.
The RYT equal weight ETF also shows broadening participation in the space even as some of its top-performing stocks take a breather. With the sector making up around 27% of the S&P 500, Newton says gains in the group should continue to power broader markets higher.
The disconnect between growth and value stocks is also clear in market performance. While the IVW growth ETF notched highs on Wednesday, the IVE value ETF held 14% below its own.
Tocqueville Asset Management portfolio manager John Petrides sees investors continuing to favor growth, though he expects value to make up for lost ground, too.
“What we’ve learned over the past decade is that growth investors thrive in a low to zero interest rate environment and … we’re going to be in this low interest rate environment for a while. Now, we live in a reversion-to-the-mean world and at some point, value will have its day, but it’s hard to see what’s going to be throwing growth here,” Petrides said during the same “Trading Nation” segment.
Petrides also notes that investors appear to be “shunning any company that has possibly any type of concern about liquidity. He sees that unfolding in the underperformance of value stocks, companies that have buyback programs and that pay dividends, and those that have been paying down debt.
“Those companies where there’s no question about the balance sheet at all, and they’re not returning cash to shareholders, are actually getting rewarded in this environment. And that’s where I think that will come to roost at some point in time with interest rates that are basically nothing,” said Petrides.
He believes high dividend-paying stocks will regain favor soon. Sectors with a high dividend yield such as energy, real estate investment trusts and utilities have underperformed the market in the past month.
