While the market closes in on its all-time highs, an examination of the market breadth suggests a potential turning point. Market breadth refers to the number of stocks in an index performing above their usual levels. In the S&P 500, a substantial percentage of companies are trading significantly above their average prices for the past 50 days.
Historically, such heightened levels have often preceded market pullbacks, indicating a potential overheating of the market. When a large proportion of companies are trading at these elevated levels, it tends to signal a cautionary note.
These moments of market euphoria, where we see the market hitting all-time highs, can tempt investors into making hasty decisions. There’s a tendency for people to take on increased risk just to join in on the growth. At Redwood, our commitment remains steadfast to a disciplined investment approach, one that sidesteps emotional reactions and remains grounded in our strategy.
Unveiling Market Breadth
- We believe the preservation of capital is key to consistent, long-term investment success.
- Our investment approach is grounded in economic theory and backed by quantitative analysis.
- Managing drawdown risk is a pillar from which we build our portfolios.
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