Another Sign of a Healthy Bull Market

The poster child of the artificial-intelligence boom blew away investors once again...

A few weeks ago, Nvidia (NVDA) announced another round of fantastic earnings. And it managed to outpace the already ambitious estimates from investors.

Shares rallied 16% the next day... and Nvidia added more than $250 billion to its market cap.

It has continued to rally in the weeks since. The stock is already up more than 80% in 2024. And that comes after its 239% rally in 2023.

You might worry that the stock is moving too far, too fast. Or worse, you might fear that the overall market is on shaky ground... that outperformance from a few mega-cap stocks is hiding a weakening bull run.

It's a reasonable fear. But once you dig deeper, you'll see there's nothing to that concern. That's because most stocks are moving higher right now – not just a few. And it means the uptrend will likely continue from here.

Let me explain...

Nvidia's blowout earnings are making it feel like 2023 all over again. The "Magnificent Seven" soared last year... And this group accounted for most of the gains in the overall stock market.

These tech titans have gotten so big and so important that lots of folks are worried. Typically, if only a few mega-cap stocks are rising – and everything else is falling – it's a terrible sign for the market.

That's not what we're seeing today...

We looked at the health of the market back in February through the advance/decline line. This indicator is hitting new highs. It's rising because more stocks are moving up than down.

That tells us the current rally is broad. Another way to see this is through the S&P 500 Equal Weight Index...

This index gives powerful insight into the overall market's health. Instead of weighting stocks by their market caps – like the S&P 500 Index normally does – it gives each stock the same weight.

For example, the Magnificent Seven make up a staggering 29% of the S&P 500... But they make up just 1.4% of the Equal Weight Index.

If only the largest stocks rally, then the Equal Weight Index won't move higher. But that's not the case today. As you can see, the index is hitting multiyear highs...

Most stocks are rallying right now. And the Equal Weight Index is darn close to breaking out to new all-time highs, too.

What's more, the Equal Weight and S&P 500 indexes are already hitting new 52-week highs together. And that means stocks will likely keep rallying.

To see it, I looked at how the overall market performed after every instance of this, going back to 1991. Take a look...

The market has its ups and downs. But it's a great long-term vehicle for building wealth. The S&P 500 has typically returned 8.6% per year since 1991.

We can do even better when both the S&P 500 and the Equal Weight indexes are hitting new 52-week highs at the same time. That setup has led to 5.8% gains in six months and 10.9% gains over the next year.

Not only that, but the consistency of these gains is impressive, too... Stocks were higher 82% of the time after six months and 89% of the time after a year. And that tells a compelling story...

The biggest companies might be getting all the headlines right now. Just look at Nvidia... Its blowout earnings certainly got a lot of attention.

But the Magnificent Seven aren't the only stocks rallying.

Most of the market is rising. This rally is healthy. And according to history, it's wise to own stocks right now.

Good investing,

Brett Eversole

Further Reading

"When stocks are going up, they tend to keep going up," Brett writes. Right now, stocks are in an uptrend. So don't overthink things... And don't fight the trend. The smartest thing you can do in a bull market is buy... Read more here.

The S&P 500 hit a new all-time high in January. After a volatile 2023, many investors are still cautious. But according to history, new all-time highs aren't something to be concerned about. Instead, they're a bullish sign for the months ahead... Learn more here.