The astonishing stock market rally since late October is "almost unprecedented", according to strategists at Deutsche Bank, but is vulnerable due to relying on a narrow number of stocks .
Starting in late October, since then the rally last week, saw the S&P 500 post its best performance in six weeks, reaching an all-time high, while other indices hit their own records, including Europe's STOXX 600 and Japan's Nikkei.
"Elsewhere, credit spreads are around their tightest over the last two years, and broader measures of financial conditions have continued to become more accommodative. But this rally is now incredibly unusual by historical standards," said macro strategist Henry Allen.
To put it in some perspective, he shared some statistics.
"The S&P 500 has now advanced for 15 of the last 17 weeks – that’s only happened one other time in the last 50 years, back in 1989," he noted.
And if the S&P 500 is positive again this week, that would make 16 out of 18 positive weeks.
"The last time that happened was in 1971, shortly before the end of the Bretton Woods system. Achieving 16 out of 18 positive weeks would also be a joint record since the index’s creation," Allen said.
In 15 of the past 17 weeks, the S&P 500 posted a gain of at least 0.2% over the week, and in its entire history has never managed to achieve that in 16 out of 18 weeks, he added.
"So if there’s a gain of at least 0.2% this week, that would be the first time the S&P 500 has managed that in history."
The current equity rally is "very narrow" by historical standards, he said, continuing the theme from 2023 with the Magnificant 7 accounting for such a large proportion of the gains.
For instance in 2023, the S&P 500 rose +24.2%, whereas the equal-weighted S&P 500, which gives an equal weighting to all 500 constituent stocks' shares, was only up +11.6%.
That marked the first time since 1998 that the S&P 500 outpaced its equal-weighted version by more than 10 percentage points, back during the dot com bubble, the strategist said.
Once again in 2024, the S&P 500 is up +6.7%, but the equal-weighted index is only up +2.5%.
Inflation persistence "could be an issue for markets", Allen added, as it would mean central banks have to keep rates higher for longer.
He pointed to when the US CPI report for January saw an upside surprise, which led to the S&P 500 falling 1.37% that day.
"So this is a theme that markets are still vulnerable to."