The last two weeks of August could bring some dramatic surprises to the market. – Today

Stocks opened flat on Tuesday, but there’s a lot of excitement lurking beneath the surface. Considering the last two weeks of August are the lowest volume days of the year, interest is very high. That’s because a very unusual rally is happening. The S&P 500 is coming off a 9-day winning streak. The last time the S&P 500 had a 9-day winning streak was 20 years ago in November 2004. The S&P is now just 1.1% away from its all-time closing high of 5,667 set on July 16. The rally from the market bottom that started on August 5 has extended significantly. Signs of strong market breadth: 1) The S&P 500 Equal Weight ETF (RSP) closed at an all-time high yesterday. 2) The NYSE Advance/Decline line is at an all-time high. 3) All 11 S&P 500 sectors are up from their August 5 lows, with nearly half at or near new highs: S&P 500 Sectors (since close on August 5, 2024) Technology up 13.1% Consumer Discretionary up 8.7% Financials up 7.5% (Communication Services up 6.8% Industrials up 5.7% (near new high, economically sensitive) Health Care up 4.7% (new high, consumer/defensive) Energy up 4.6% Consumer Staples up 3.6% (new high, consumer/defensive) Real Estate up 3.6% (new high, rate sensitive) Utilities up 3.4% (new high, rate/AI sensitive) Materials up 3.4% Here’s what the broad-based rally looks like: Sectors) have been leading the way, with economically sensitive sectors like Financials and Industrials performing strongly, but rate sensitive sectors like Real Estate and Utilities have also performed strongly. Consumer/defensive groups like consumer staples and health care were also leaders (both sectors are at new highs). The factors that led to this expansion are well known. The soft landing scenario remains intact. Economic data showed some slowdown, but job growth remains strong, the Fed is expected to start cutting rates in a few weeks, and earnings are very solid, with S&P 500 earnings expected to grow 10% by 2024 and 15% by 2025, not much growth. That has changed in recent months. Perhaps more importantly, the recent volatility in early August led to a significant unwinding of many crowded trades, including some yen carry trades, which may have helped reduce market volatility.