This Market Rally Has Been Strong, Steep—and Broad

The “v-shaped” bounce of stocks off of April lows has a healthy characteristic—the rally has widened to include sectors like Financials, Industrials, and Utilities.

A Healthy Signal in the Recent Market Rally Stocks’ “v-shaped” bounce off the April lows has been strong, steep, and convincing. But it also has a characteristic I would classify as healthy—it’s been broad. Market watchers and readers of my column are familiar with the years-long theme of mega-cap Technology stocks driving a lion’s share of the gains in the S&P 500 index. While this general theme remains relevant in the current market environment, we’ve also seen participation widen substantially in the past several weeks to include sectors like Financials, Industrials, and Utilities. Technical data confirms this trend. The number of S&P 500 stocks trading above their 50-day moving average has surged to levels not seen since last fall, and advance-decline ratios, which count the number of stocks rising versus those that are falling have notched new highs.1 Historically, this kind of broadening has been a positive sign. Broader participation means more leadership, more diversification, and I would argue more investor confidence that gains aren’t part of a momentum trade (like enthusiasm for AI or meme stocks). Not Just a Rebound—A Reset. What Does This Mean for Your Portfolio? Markets have snapped back hard, but the real story is under the surface. Sectors that had been lagging are now leading, and technical data points to growing strength. Our July Stock Market Outlook Report 2 breaks down what’s fueling the move, why it matters now, and how to stay positioned as momentum builds. Inside, you’ll find: Asset allocation guidelines for today’s market environment. Expert forecasts for inflation, rates, and economic trends. Industry tables and rankings to help you spot opportunities. Buy-side and sell-side consensus insights at a glance. And much more! If you have $500,000 or more to invest and want to take charge of your financial journey, click the link below to get your free report today! IT’S FREE. Download our Exclusive July Zacks Stock Market Outlook Report 2 What’s been encouraging to me is that investors appear to be taking more interest in areas of the market with relatively attractive valuations. Mega-cap tech names often trade well above 30 times forward earnings, which is not the setup in a sector like Financials. What we’re seeing now is that capital is rotating from ‘expensive’ areas of the market to ‘cheaper’ sectors and regions, which I see as a good thing. Readers know what I think about broad diversification. To be fair, there are also some unhealthy qualities to be found in this market rally. Some pockets of the market, particularly among unprofitable companies and what have been deemed ‘meme stocks,’ have staged very powerful rebounds. Indeed, certain stocks that were hit hardest earlier this year have seen triple-digit percentage gains since April, fueling headlines about a resurgence in speculative trading. These moves may remind some of the GameStop / AMC craze, and it’s clear that a segment of retail investors is once again leaning into risk. But these cases are the exception, not the engine driving the overall market rally. Their sharp recoveries largely reflect how steep their prior declines were, and they don’t signal a broad market shift toward speculation, in my view. The broader rally has been driven by sector rotation, valuation-based rebalancing, and renewed interest in previously lagging industries. Unlike during past bouts of exuberance, we’re not seeing indiscriminate buying or stretched valuations across the board. Breadth has improved across fundamentally sound names in Financials, Industrials, and other cyclical sectors, suggesting a more balanced and sustainable move higher. If anything, the presence of skepticism about speculative activity may indicate that sentiment remains grounded, not euphoric. The entire story also has the backdrop of resilient economic data, which strengthens the case that this is a healthy market rally. We continue to see modest inflation, solid job growth, and a consumer who may be a touch pessimistic but continues to spend anyway. In my view, there’s a reasonable case that this market has room to run, with expanding breadth being a support to that argument. Bottom Line for Investors For investors, expanding market breadth should be a testament to the value of owning a broadly diversified portfolio. In environments where participation widens, opportunities tend to emerge in corners of the market that have been overlooked or underappreciated. A diversified portfolio doesn’t need to chase the leader, as leadership shifts, you’re already positioned to participate. Looking ahead, one area worth watching closely is small-cap stocks. While they’ve lagged in the current rally, that underperformance could represent latent potential rather than persistent weakness. If economic conditions remain stable and monetary policy eases further, small-caps—particularly those with strong balance sheets—could catch up in a hurry. Historically, when market breadth improves meaningfully, small- and mid-cap stocks often follow with some of the strongest relative gains. Markets don’t need perfect conditions to move higher. When participation widens and investors rotate into fundamentally sound areas, it often signals something more sustainable than a short-term bounce. Understanding these shifts, what’s driving them, and where they may lead is key to staying ahead. Our latest July Stock Market Outlook Report 3 breaks it all down. Inside, you’ll find: Asset allocation guidelines for today’s market environment. Expert forecasts for inflation, rates, and economic trends. Industry tables and rankings to help you spot opportunities. Buy-side and sell-side consensus insights at a glance. And much more! If you have $500,000 or more to invest and want to take charge of your financial journey, click the link below to get your free report today! About Zacks Investment Management Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we’ve developed to design customized investment portfolios based on each client’s individual needs. 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