Hakyung Kim
Bloomberg
July 5, 2023
Tech stocks led the way higher for the market in the first half. Bank of America expects other names to join in on the rally during the second half.
The first half of 2023 was the best for the S&P 500 since 2019, surging 15.9%. The tech-focused Nasdaq Composite, meanwhile, had its best first half since 1983, jumping 31.7%. The Dow Jones Industrial Average added a more muted 3.8% gain.
However, the rally also had the narrowest breadth in history. Only 25% of stocks outperformed the broader market index, according to Savita Subramanian, the bank’s head of U.S. and quantitative strategy.
“Just to get to the historical average 12-mo. breadth of 50% by year end, about a quarter of stocks in the S&P 500 would have to climb at least 5.7% assuming the index stays flat through the year end,” Subramanian said.
“We expect breadth to continue to broaden out as seen in June, and expect the equal-weighted index to outperform the cap-weighted index in 2H,” she continued.
The Invesco S&P 500 Equal Weight ETF (RSP), which tracks a version of the S&P 500 in which stocks are weight equally rather than by market cap, is up just 5% year to date. However, the ETF would benefit from a greater number of stocks rising.
The strategist also noted that, “Despite some improvement in sentiment, Wall St. is still largely cautious on equities, which suggests the pain trade is still to the upside.”
Subramanian’s note comes after she took her most bullish position in at least a decade last month, citing an improving macroeconomic backdrop despite fears of a recession.