The main reason that this rally feels somewhat underwhelming is because the number of stocks participating has been contracting since May 2013. Let's start by looking at the percentage of stocks making 52-week highs. The latest reading is only 15%. So 93 out of 620 stocks are making 52-week highs even though the MSCI USA only closed 1 point off it's all-time high on Friday. As you can see in the first chart below, the percentage of stocks making new 52-week highs has been narrowing for 16 months. On the flip side, only 3% of stocks (18 out 620) are making 52-week lows. This level was reached on August 1st and on May 19th when the MSCI USA index was 4.1% and 6.5% lower, respectively. Amazingly, the last time at least 5% of MSCI USA stocks were making 52-week lows was in November 2013. The second chart below shows that in true corrections or cyclical bear markets, the percentage of stocks making 52-week lows rises to 30% (August 2011) to 84% (October 2008).
The average stock is also only 8% off it's 52-week high and is 26% higher than it's 52-week low. We are approaching distances from 52-week lows that were last reached in 2012 and 2011. The market was able to rally then but we are suspicious that it will be able to do so this time as breadth as deteriorated. The equity market will need much broader participation if the equity market is to have further gains from where we stand today.
