MW It's not just tech stocks: The broad-based strength of the market right now gives investors reason to stay the course
By Gordon Gottsegen
While tech is still leading the party, more parts of the market are starting to join in
The stock market has continued to push higher over the last two months.
May brought yet another month of stellar stock-market performance. And there's reason to believe the market is only getting healthier.
The S&P 500 SPX rose roughly 5.2% in May, and ended the final trading day of the month with a fourth straight record close. That's on top of the 10.4% rally it saw in April, which means the index climbed 16.1% over the past two months - resulting in the largest two-month gain for the S&P 500 since May 2020, according to Dow Jones Market Data.
There's no doubt that the tech industry has been leading this rally to record highs, as investors pour more money into semiconductor stocks. The S&P 500's information-technology sector XX:SP500.45 grew around 15.9% in May, far outpacing other sectors.
And though most of the S&P 500's 11 sectors lost ground in May - eight, to be exact - there were signs over the past week that more stocks are starting to participate in rally, which bodes well for the health of the overall market and how long the rally could last.
This is important because, just a few weeks ago, the stock market was feeling very concentrated. MarketWatch previously reported that the S&P 500 gained $9.19 trillion in market capitalization between March 30 and May 11 - 62% of which came from its 10 largest companies.
A narrow stock market comes with issues, noted Keith Buchanan, senior portfolio manager at Globalt Investments. It means that the market becomes more reliant on fewer companies doing well.
Buchanan said that if the market becomes too narrow, growth for the stock market's leaders could come at the expense of other companies or even the broader economy. For example, if artificial intelligence is so effective at increasing productivity that it leads to widespread AI-related layoffs, that could raise the unemployment rate, reduce consumer spending and spook investors. Buchanan said a narrow rally could lead to a shortened market cycle as investors grapple with where the growth comes from.
"Narrowness, in our opinion, is a problem because it poses questions of cannibalism for the rest of the market and the broader macroeconomic conditions that make bull markets really difficult to continue," he said.
Also read: Here's how to invest when the stock market gets this concentrated
The stock-market rally is still pretty concentrated, but it's now a little less so. As of market close on May 28, 57.2% of the stocks in the S&P 500 were trading above their 200-day moving average, according to Dow Jones Market Data - pointing to more than half of the index's constituents being in longer-term uptrends. Earlier this month, the number was below 50%.
On May 29, 40 of the S&P 500's stocks were trading within 2% of their 52-week intraday highs - a slight increase from the 30 stocks trading at this level two weeks prior.
The 10-day advance/decline line for the S&P 500 also shows market breadth improving, according to a chart from Bespoke Investment Group. Breadth was negative earlier in May before moving back into positive territory.
This broadening has been felt in a few ways. The equal-weighted S&P 500 XX:SP500EW has outperformed the standard market-cap-weighted S&P 500 for two consecutive weeks, as more stocks start to catch up to the largest companies.
Small-cap companies have been doing well too, with the small-cap Russell 2000 index RUT outpacing the S&P 500 over the past week, despite a decline on Friday. The Russell 2000 is up roughly 17.6% year to date, ahead of the S&P 500's 10.7% gain.
"You're seeing broad-based strength, which is typically indicative of underlying economic health," said Terry Sandven, chief equity strategist at U.S. Bank Asset Management Group. "We're seeing strength, both home and abroad, and among large and small companies. That is typically a backdrop for upward-trending equity prices."
Sandven said that a lot of this market strength comes from solid first-quarter earnings. He highlighted the roughly 22% year-over-year earnings growth for the overall S&P 500, which points to a market rally supported by improving fundamentals as opposed to extended valuations.
To be sure, a lot of that growth has been driven by tech - whether that's capital expenditures from megacap companies, or increased demand for data centers and semiconductors.
But Sandven noted that earnings have been rising across all sectors.
Read: These underdogs are a big reason why S&P 500 profit growth is the fastest in nearly 5 years.
Industrial demand has stabilized, with conditions for railroad and trucking companies improving, Sandven said. And consumer spending has been resilient, albeit bifurcated, which has helped restaurants, retailers and travel companies.
"If you look toward year-end, the path of least resistance for equities is still up," Sandven said. "Inflation is relatively stable, interest rates are trending flat and earnings are robust. That's 'Goldilocks' for stocks and certainly supportive of valuations and a risk-on bias."
However, Sandven also said that time horizons matter. While the market is supportive of long-term equity growth, he acknowledges that there could be some near-term declines or choppiness as the market tries to consolidate this latest rally.
The S&P 500 gained about 5.2% for the month of May, while the Dow Jones Industrial Average DJIA rose 2.8% and Nasdaq Composite COMP climbed 8.4%. All three of those major U.S. stock indexes closed at record highs on Friday - the third day in a row that they all achieved that feat.
Investors will be watching for data on the labor market in the week ahead - with job-openings data for the month of April due out Tuesday, ADP employment data out Wednesday, and the U.S. employment report for the month of May coming on Friday.
Ken Jimenez contributed.
-Gordon Gottsegen
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(END) Dow Jones Newswires
May 31, 2026 15:12 ET (19:12 GMT)
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