The market's continuous rise has boosted the S&P 500 by almost 25% since October, thanks to the increase in just a few stocks. Nvidia (NVDA), a top player in AI, has seen its value grow by over 80% since the year began. This significant leap has propelled both the S&P 500 (GSPC) and Nasdaq (IXIC) to new all-time highs.
Some Wall Street observers are sounding the alarm, saying that the rapid surge in stock prices could indicate a market bubble. The market's concentration has risen to levels not seen in decades. The top 10 US stocks now represent 33% of the S&P 500's market cap and a quarter of its earnings, as per data from Goldman Sachs.
Wall Street optimistic
Worries about limited market involvement and overvaluation might be misplaced. Numerous leading Wall Street experts clarified on Yahoo Finance's "Morning Brief" last week, giving reasons to expect the market to continue rising.
Drew Petit, the Director of Citi US Equity Strategy, expressed skepticism regarding the prevalent bubble fears during a discussion on Yahoo Finance Live. He dismissed the notion as misguided, arguing that the current market state is healthier than most people assume.
The bull market is doing well, with leading companies like Nvidia, Meta (previously known as Facebook), Microsoft, and Amazon having impressive quarterly performances.
When Wedbush analyst Dan Ives discusses today's market condition, he likens it to the profitable year 1995, not the beginning of the dot-com bubble, underlining the impact of high-profit margins and commendable returns.
Analyst Ives reinforced the difference between the current market scenario and the 1999/2000. He highlighted that the astronomical valuations, lack of monetization and infrastructure, weak balance sheets, unstable business models, and macroeconomic backdrop of that era bear no resemblance to today's conditions. These remarks were shared in a note to his clients.
Citi's Danely confident in sustained tech growth
Chris Danely, the head of US semiconductor research at Citi, shared Ives's optimistic outlook on tech. He told Yahoo Finance he sees the situation staying the same.
According to Danely, in his interview with Yahoo Finance Live, he believes there is still a considerable journey before concerns such as ringing alarm bells begin to stir.
Despite what you've heard about tech, the general market trajectory looks promising. More investors display a 'bullish' or positive attitude, signified by the improving market breadth. Smaller companies and the S&P 500 equal weight index (SPXEW) have been doing better than the leading S&P 500 index in the last month.
Market broadening signals potential
According to Charles Schwab's Liz Ann Sonders, who spoke to Yahoo Finance, stealthy broadening is not necessarily negative.
History tells us that high concentration doesn't always signal a market peak. Goldman Sachs studied market concentrations over the last century and found that the S&P 500 often surged following past concentration highs.
Goldman Sachs equity analyst Ben Snider noted a consistent pattern during periods of elevated concentration - large swings in Momentum. He further explained that while the performance of the high Momentum leaders showed inconsistencies, the previous laggards always appreciated in absolute terms. Snider believes this highlights that a "catch up" by these laggards is more likely to disrupt the ongoing Momentum rally than a 'catch down' from recent market leaders.
Amazon, Lululemon, and Hyatt takes the lead
Amazon has seen great success, with a steady increase in its online store's earnings throughout the last year and an impressive 84% boost in stocks. In the past two decades, the company has put a lot of money into improving its delivery system, successfully creating a network as extensive as UPS in just a year and a half to cater to increased demand during the pandemic.
Lululemon's growth has been impressive over the past ten years, primarily because of the solid athletic clothing market. The company's earnings have more than doubled compared to before the pandemic. They've shown a steady rise, with a 19% jump in the most recent quarter compared to last year.
Hyatt, a big name in the luxury resort industry, is set to give significant returns to shareholders. This is due to the rising demand for travel, which is expected to grow beyond $1 trillion by 2027.