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).
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.
1 Wall Street Journal. June 28, 2025. https://advisor.zacksim.com/e/376582/link-desktopwebshare-permalink/5t9b1n/1265478991/h/ZSGyjPRySxukaLNY5EFTNCvEYSGwS9kWz-HDQKbQQkI
DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.
The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Bloomberg Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index is a modified market capitalization weighted index composed of preferred stock and securities that are functionally equivalent to preferred stock including, but not limited to, depositary preferred securities, perpetual subordinated debt and certain securities issued by banks and other financial institutions that are eligible for capital treatment with respect to such instruments akin to that received for issuance of straight preferred stock. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The MSCI ACWI ex U.S. Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 24 Emerging Markets (EM) countries. The index covers approximately 85% of the global equity opportunity set outside the U.S. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Russell 2000 Index is a well-known, unmanaged index of the prices of 2000 small-cap company common stocks, selected by Russell. The Russell 2000 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The S&P Mid Cap 400 provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500, is designed to measure the performance of 400 mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.
The S&P 500 Pure Value index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics by using a style-attractiveness-weighting scheme. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
