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Bert Dohmen is a serious analyst and a trader. You’ve probably seen him on national TV such as CNBC, Neil Cavuto’s show on FOXNEWS, CNN, or read his views in Barron’s, the Wall Street Journal, Investor’s Business Daily, Business Week, etc. He is a professional trader, ...more

What's Really Driving the S&P 500 Higher?

Date: Tuesday, July 31, 2018 6:19 PM EDT

Since the beginning of April, the S&P 500 has been setting higher highs and higher lows.In fact, it recently broke out above a key resistance level it set back in March.

But the question traders and investors should be asking themselves is could this be a false up-side breakout or will new highs be reached?

However, just because the S&P 500 is higher, does not mean that the broader market is doing as well.

Compare the chart of the S&P 500 to that of the NYSE Composite, which contains over 2000 stocks and is much more representative of the overall market performance.

The chart below shows that the NYSE has not even been able to recover the levels set in March and currently has a meager 0.6% gain in 2018.

The S&P 500, on the other hand, is approaching its all-time high once again.

If the broader market is underperforming, while a few market indices are doing very well, there must be a few select components of these indices that are driving the markets higher.

Take a look at the table above, which shows the weights of the various sectors that comprise the S&P 500, along with their performance so far this year.

As you can see, only three of the eleven S&P sectors are currently outperforming the S&P 500 Index. This shows that the majority of sectors are actually underperforming in 2018.

The chart of the Technology sector ETF (XLK) set a new all-time closing high last Wednesday and is up 15.6% this year alone. The Consumer Discretionary sector ETF (XLY) is up 13.5% and also recently hit new all-time highs.

Meanwhile, the S&P 500 is only up 6.1% year-to-date.

However, if you held any of the other eight sectors of the market, you likely would be underperforming the S&P 500 right now and perhaps have accumulated significant losses this year.

Just take a look at the charts of some of the weakest sectors including Consumer Staples (XLP) and Materials (XLB) versus the best performers mentioned above.

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