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Three Events Could Kill The Amazing $6.1 Trillion Stock Rally

Had you invested in the S&P 500 and the rest of the market this year — you grabbed part of a massive $6.1 trillion windfall. The only question is how much you got, and what’s next.




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Massive dollar-value gains have rained down this year, especially on these four technology and communications stocks: Google parent Alphabet (GOOGL), Microsoft (MSFT), Facebook (FB) and Nvidia (NVDA). This fantastic four alone have added $1.2 trillion to portfolios in 2021, shows an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.

That’s more than any other S&P 500 companies. And it means just those four companies accounted for 20% of the total market-value gains in this year, says Wilshire Associates.

But that’s just the beginning of the gains. Markets are up $24 trillion since the March 23, 2020, low, Wilshire says. “The market continued up … as even the fear of inflation, and worse, the end of Fed stimulus, failed to stop the market from its appointed new highs,” said Howard Silverblatt, index analyst at S&P Dow Jones Indices.

So, where else are gains coming from?

Top Market Value Gains In S&P 1500 So Far This Year

Company Name Ticker YTD market-value gain ($ billions) YTD % gain Sector
Alphabet (GOOGL) $455.9 39.7% Communication Services
Microsoft (MSFT) $364.0 22.1% Information Technology
Facebook (FB) $226.8 29.7% Communication Services
Nvidia (NVDA) $180.4 54.8% Information Technology
Berkshire Hathaway (BRKA) $97.4 21.0% Financials
 Source: IBD, S&P Global Market Intelligence

Drilling Down Into The Year’s Amazing Rally

Head-turning market-cap gains by giant technology stocks get the attention. But the sleeper surprise is coming from below the surface.

If there’s a theme it’s this: “The lower the share price and the lower the market cap, the better the performance,” said Bespoke Investment Group. And the numbers bear this out. All of the 25 top-performing stocks in the broad S&P 1500 index this year so far are small caps.

S&P 600 SmallCap member and consumer discretionary stock GameStop (GME) is up 991% this year so far. The stock is the No. 1 performer in the S&P 1500, by far. The stock got caught up in a buying frenzy led by individual investors. The company is now worth more than $15 billion — surpassing the value of many large S&P 500 companies. It added $14 billion in market value just this year.

And No. 2? That’s energy play Laredo Petroleum (LPI). The oil exploration company’s stock is up nearly 400% this year so far. That puts nearly $1 billion in market value into investors’ portfolios.

The Three Events That Could Kill The S&P 500 Rally

There’s plenty to celebrate as the S&P 500 races to highs. But isn’t that the time something could go wrong, too?

Turns out there are three events that “always cause market dislocations,” said Nicolas Colas, co-founder of DataTrek Research, based on his analysis of 40 years of market history.

And those are: sudden and persistently higher oil prices of 50% annually or higher. That’s happened three times due to global political events in 1973, 1979 and 1990, Colas found. And two times from asset bubbles in 2000 and 2008. The price of WTI oil this week is up 82% from its lowest point in the past 52 weeks.

The second risk is an overly aggressive move by the Federal Reserve to push up short-term interest rates. This was an issue in 1994 and 2000. Sometimes, the dislocation is due to a miscommunication of the Fed’s plan to the market.

And lastly, watch for peaking S&P 500 earnings growth. “The historical record of S&P 500 earnings shows a clear pattern: They first rise quickly after a recession, then they stabilize and grow more slowly in the middle of a cycle, but then plummet in the next economic downturn,” Colas said.

It’s not an issue yet. S&P 500 earnings are seen jumping nearly 63% in the just-finished second quarter of 2021, says John Butters, earnings strategist at FactSet. If it pans out that way, it would be the highest quarterly growth rate for S&P 500 earnings since the fourth quarter of 2009. Profit jumped 109% in that period, Butters says. S&P 500 companies are expected to start reporting in a few weeks.

So enjoy your trillions. If you followed time-tested rules for growth investing, you’ve found giant winners. Just know what to look for next.

Top Percentage Gains In S&P 1500 So Far This Year

Company Ticker YTD market-value gain ($ billions) YTD % gain Sector
GameStop (GME) $13.9 984.7% Consumer Discretionary
Laredo Petroleum (LPI) $0.97 385.9% Energy
Callon Petroleum (CPE) $2.2 352.2% Energy
Chico’s FAS (CHS) $0.6 318.9% Consumer Discretionary
SM Energy (SM) $2.3 316.8% Energy
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz

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