From "Dominance of Giants" to "Blossoming in Multiple Points," How Far Can This Wave of Rebound in the US Stock Market Go?

Behind the new highs in the US stock market, technology giants are not the only contributors; more sectors have also contributed to the rise, pushing the Nasdaq and S&P 500 to historical highs this week. Analysts believe this may indicate that there is still room for growth throughout the summer.

Looking back at market trends, US stocks experienced a sharp decline earlier this year due to concerns over tariff frictions, with technology giants leading the market down. However, as fears of an economic recession eased and trade tensions improved, market panic quickly dissipated, leading to a strong rebound in tech stocks. Now, this rebound is no longer limited to the technology sector but has spread to more industries such as finance, industrials, and utilities.

Multiple indicators show that market participation is expanding. First, the number of stocks in the S&P 500 index closing above the 50-day moving average has returned to levels seen last fall, which was the phase following Trump's election victory that triggered the year-end rally, indicating a strengthening technical outlook. Second, the ratio of advancing stocks to declining stocks hit a new high this Friday, indicating broader market participation.

Investors are starting to bet on more sectors, no longer just chasing tech giants

Wall Street generally believes that the improvement in market breadth is a signal of a healthy stock market and that the rise can be sustained. LPL Financial's Chief Technical Strategist pointed out:

“We have seen this script before, where big tech stocks rise first and then drive the entire market up. It looks like this time is replicating that pattern again.”

However, whether this trend can continue depends on several key uncertainties in the second half of the year, such as risks from geopolitical conflicts in the Middle East, the Federal Reserve's interest rate path, and the Trump administration's final tariff policies. Analysts from Sevens Report also remind us that as long as the broader environment remains stable, this market is definitely not at the point of exhaustion yet.

FOMO trading drives strength in non-tech sectors

As tech stocks rebound, their valuations have also soared. Last week, some large tech stocks are now expected to have price-to-earnings ratios exceeding 30 times, while the average for the S&P 500 is about 22 times.

Another driving force behind the expansion of market breadth is the fear of missing out (FOMO trading) among some investors. As tech stock valuations skyrocket, many funds have started to shift towards previously overlooked industries and sectors, looking for "discount stocks" and new opportunities.

Not only retail investors but also some professional investors are strategically diversifying their portfolios. For example, Jamie Cox, Managing Partner at Harris Financial Group, has not significantly increased his positions in tech stocks during the recent pullback but has instead focused on a long-term portfolio of defense, finance, and international blue-chip stocks. He stated:

“I’m a bit surprised it took so long for this rally to come, but now it’s finally starting to pay off.”

He also mentioned that more and more clients have been approaching him in recent months, hoping to diversify their portfolios and reduce reliance on a single industry.

Analysts also remind us that although more sectors are starting to catch up, the dominance of tech giants is unlikely to be shaken in the short term. Optimistic expectations for AI remain the core theme that investors are most concerned about, supporting the high valuations of the entire tech sector

Small-cap stocks still lag behind, but confidence is expected to recover

It is important to note that this wave of rebound has not spread to all corners of the market. Small-cap stocks continue to lag behind the major indices. George Pearkes, a macro strategist at Bespoke Investment Group, analyzes that for small-cap stocks to rise as well, there needs to be a significant shift in investors' risk appetite.

However, there are also optimistic views. Eric Teal, the investment director at Comerica Wealth Management, is increasing his positions in mid-cap, small-cap, and even micro-cap stocks, particularly local bank stocks. He believes that these banks are less affected by tariff policies, and the potential interest rate cuts by the Federal Reserve will lower financing costs, benefiting the expansion of small companies. He emphasized:

“The broadening of the market is not a short-term phenomenon.”