Analyses are suggesting that there are no signs of overheating in the IT sector, which is leading the rally of the U.S. stock market in New York.
In anticipation of a decrease in the benchmark interest rate, the S&P 500 and Nasdaq Composite are breaking new records. In particular, the Nasdaq index took advantage of the AI’s popularity, hitting a new high for five consecutive days as Adobe’s stock surged by 14% on June 14 (local time).
KB Securities Analyst Ahn So Eun assessed, “Indicators such as the American Association of Individual Investors (AAII) weekly survey and the proportion of S&P 500 stocks above their moving averages are still situated between overheating and over-cooling.”
The degree of overheating can also be measured by the proportion of stocks above their medium and long-term moving averages in each sector. According to an analysis, although some are concerned about the overheating of the IT sector leading the current rally, the proportion of IT stocks above their 50-day and 200-day moving averages is nearing the overheating baseline (80%). However, it has not yet entered the overheating zone.
Ahn pointed out, “The recent rise in the IT sector is primarily due to the strong performance of Oracle and Broadcom and the announcement of Apple’s AI strategy. These factors are boosting earnings forecasts, so the burden of multiples has not increased as much as the stock price.”
In the past, there have often been instances where a few sectors led the rally during a period of record-breaking highs, as they are now.
By standardizing the highest of the three-month returns among the 24 S&P 500 industrial groups since 2010, it was explained that the current concentration intensity corresponds to the top 25% during that period, with the highest concentration recorded at the end of 2021.
Ahn noted, “Looking at the times when the record-breaking rally was underway in the past, there have been many instances where the intensity of concentration was greater than it is now. This suggests that while concentration is a concern, it does not hinder or stop the rally.”
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