New Highs That Come Without Many New Highs Are Not Bullish

The S&P 500 made a new high last week but paltry participation has investors souring on stocks

Hi Mount Research is approaching its 2nd birthday. I’ve shared some thoughts on the where we have been and what lies ahead (as well as a new pricing structure as I adapt to new realities)

Macro Chart for the Week: Defense spending (as a % of GDP) has been in decline for decades. After being historically low and relatively stable for over a decade, debt servicing costs for the Federal government have surged as debt levels and interest rates have climbed over the past 5 years. The US is now spending more to service its existing debt than it is on national defense. A recent article in the Wall Street Journal reviews the history of when this has happened to great powers in the past it has been a tipping point on the road to ruin. “Those who cannot remember the past are condemned to repeat it.”

The S&P 500 closed at a new all-time high on Wednesday, though by the end of the week it was back below where it was in early December. While new highs in the index are generally reasons to celebrate, the nature of last week’s new high raises some cause for concern. Moreover, the inability of the S&P 500 to sustainably separate from its early December level is not surprising given the lack of robustness in US breadth that has accompanied rallies in recent months. More on both of those points in just a moment.

First a couple of discrete examples of poor breadth in the US and how that contrasts with what we are seeing overseas. We highlighted improving global trends in last week’s note (and I was excited to see some of those charts show up in market conversations).