Finding Opportunities as the S&P 500 Hits All-Time Highs

The S&P 500 reached yet another record high on Wednesday, igniting discussions amongst investors about the potential for a repeat of 2024, a year characterized by an impressive 57 all-time highs. Last year, the index’s stellar performance was primarily driven by major technology stocks and an enthusiasm for AI exposure. However, the outlook for 2025 paints a slightly different picture, as more stocks are beginning to contribute to the upward momentum, alongside a decline in the robust performances of some major tech names.

Market Insights from Simon Ree

In this context, trader Simon Ree, founder of the Tao of Trading options academy, emphasizes that investors should focus less on a select group of high-performing stocks and look broader across the market. Ree, known for his successful market predictions—including a stock rally forecast in July 2022 and advice to “get long in April 2020″—recently shared valuable insights on market breadth on the platform X (formerly Twitter).

Ree provided a series of charts highlighting market breadth, which measures the balance between advancing stocks and declining stocks within an index. Currently, the S&P 500 (SPX) is trading at record highs; however, the equal-weight S&P 500 (XX:SP500EW) is showing signs of lagging, with only 53% of its constituents trading above their 50-day moving average.

The Importance of Market Breadth

While some may view this information as bearish, Ree’s analysis presents a more optimistic perspective. He notes that the advance-decline line—a key breadth indicator—recently hit a record high, suggesting that “more stocks are participating in the rally than you think.” His analysis underlines the significance of the 53% figure; historically, the percentage of stocks above their 50-day average reaches peaks around 70%, indicating that other lagging stocks still possess ample potential to catch up.

“Bullish, not bearish,” Ree asserts, emphasizing the growth potential of the market even amid the current high levels.

Shifts in Technology Stocks

Diving deeper into the tech sector, Ree highlights an important shift taking place. He points out that the ETF tracking the equal-weight Nasdaq-100 (QQQE) has been outpacing its market-cap-weighted counterpart (QQQ), which often captures more investor attention. While the “Magnificent 7” tech giants seem to be treading water collectively, mid-cap tech stocks are beginning to gain momentum. “Breadth is growing anywhere it matters,” Ree claims, indicating that significant opportunities may exist beyond the established tech behemoths.

Hiding Opportunities in Mid-Tier Stocks

Ree advises investors to pay attention not just to the mega-cap firms but to breadth indicators as well. He warns against aligning investment strategies too closely with the performance of high-profile stocks. “Opportunity might be hiding in the mid-tier, not the usual suspects,” he muses, steering investors toward areas of the market that may be overlooked.

ETF Insights: The Change in Guard

Expanding on this advice, Ree explained in a subsequent conversation with MarketWatch that the stocks leading the market rise over the past month are primarily constituents of ETFs like the VanEck Social Sentiment ETF (BUZZ) and the VanEck Innovator IB 50 ETF (FFTY). These ETFs had been overshadowed by the Mag 7 tech giants but have started to attract attention due to their positive performance metrics.

The VanEck Social Sentiment ETF aims to identify companies with the “highest degree of positive investor sentiment,” counting among its top holdings stocks like Super Micro (SMCI), Palantir (PLTR), Hims & Hers Health (HIMS), Ast SpaceMobile (ASTS), and Meta Platforms (META). On the other hand, the Innovator IB fund targets companies showcasing robust profit growth, sales increases, wide profit margins, and a high return on equity, listing Hims & Hers Health, GRAIL (GRAL), Sprout Farmers (SFM), Doximity (DOCS), and Celestica (CA:CLS) as its top holdings.

Conclusion: A Broader Approach to Investment

As the S&P 500 continues to set new records, the emphasis on a narrow set of leading stocks may overlook substantial opportunities across a broader array of investments. Ree’s observations on market breadth and the performance of mid-cap stocks suggest a more expansive view might be prudent for investors looking to maximize returns. In an evolving landscape where technology stocks are witnessing shifts, vigilance and adaptability will be key to navigating the upcoming year.