The rally in semiconductors is starting to run out of superlatives to describe it.  Just when you think it has to take a breather, it turns around and rallies another few percent. Yesterday, the Philadelphia Semiconductor Index (SOX) closed more than 17% above its 50-day moving average and 36% above its 200-DMA.  Regarding the 50-DMA, it hasn’t even traded down to within 3% of that level in the last 80 trading days. In fact, the only time it has even traded within 4% of its 50-DMA since mid-November was on 12/6 when it closed 3.99% above that level.

The chart below shows streaks where the SOX closed at least 3% above its 50-DMA, and the current streak ranks as the longest since the days coming out of Covid and just the fifth in the index’s history since 1994.  The longest streak ended at 143 trading days in August 1995. In looking at the four prior streaks, once they reached the 80-day point, the forward one-year performance of the SOX was mixed with a median gain of just 3.1% and positive returns just twice.

Yesterday was a monumental day for the semiconductor sector because it was also the first time in its history that the index closed at a higher price than the S&P 500.  It got close in 1999 but never quite got there. The rally in semis over the last few years has been nothing short of amazing, but the slope of the ascent in the ratio (i.e. relative strength of semis) back in 1999 and early 2000 was practically a straight line!

As mentioned above, the SOX is currently trading more than 36% above its 200-DMA, and within the index, there are some incredibly wide spreads. As shown in the chart below, Nvidia (NVDA) closed more than 90% above its 200-DMA yesterday, and another three stocks — Advanced Micro (AMD), Coherent (COHR), and Taiwan Semiconductor (TSM) — are all more than 50% above their 200-DMAs.

In the case of NVDA, 90% above the 200-DMA???? A lot of traders looking at a spread that wide would probably start thinking about shorting a stock. We’d be the first to agree that a spread that wide seems unsustainable in most cases.  However, you only have to go back 10 months to find the last time NVDA was more than 100% above its 200-DMA, and back then the price was under $400, or 60% below current levels! One thing to keep in mind regarding NVDA is that its rally has been described as a once-in-a-generation type of gain, and while these types of moves don’t come around all the time, as we noted earlier today, NVDA’s performance over the last 350 trading days since its 2022 lows still trails the gain Tesla (TSLA) experienced coming out of the Covid-crash lows.

Essentially the “stock du jour” of any day of the past year has been anything related to AI.  The poster child has been NVIDIA (NVDA) with downright gaudy gains lifting the stock to a market cap of over $2 trillion. Although earnings have been impressive and to a degree supportive of those gains in the stock price, the stock currently trades with a price to sales ratio of a lofty 35.94. As we first noted in last Thursday’s Closer alongside the debut of our AI Basket, including NVDA there are currently around 50 stocks that have doubled year-over-year, possess a market cap of at least $500 million, and have a price to sales ratio of 10 or more. In the charts below, we show the number of stocks fitting these criteria each month over the past 30 years.  As shown, while there are currently a decent number of these stocks trading with “ludicrous” multiples and gains, the count is far below what it was at the time of the Dot Com era or even as recently as 2021. With that being said, the collective market cap of the current list of names far surpasses those prior peaks. The major caveat to this, of course, is that nearly half of that is all NVDA.  Removing the other three stocks making this list with the largest market caps—Broadcom (AVGO), Eli Lilly (LLY), and AMD (AMD)—the collective market cap of this screen of stocks hardly stands out.

In all, currently there are a decent but not unprecedented number of stocks trading at high valuations. While the large collective market cap of these names (and hence their impact on market-cap weighted indices like the S&P 500) can perhaps be viewed as more worrisome, that is more a story for a handful of names rather than a broad market frothiness.

In the table below we show the 49 stocks that are currently on the Ludicrous List.  Again, these are stocks that have doubled over the past year, have market caps above $500 million, and a price to sales ratio above ten.  Outside of the four largest of these stocks by market cap mentioned above, there is no stock with a market cap above $100 billion.  Additionally, the bulk of these names are in the Health Care industry; more specifically the traditionally more speculative Pharmaceutical and Biotech industry.

Not only has the S&P 500 returned to new highs but sentiment is also making a push higher.  As shown below, the latest AAII Sentiment Survey showed more than half of respondents surveyed responded as bullish.  At 51.7%, bullish sentiment is now slightly below the multi-year high from December 21st (52.9%).

While a majority of respondents are reporting as bullish, less than a quarter are bearish.  This week, bearish sentiment fell to 21.8% which was a half percentage point uptick versus the previous week.

Regardless of the increase in bears, bulls netted a much larger increase resulting in the bull-bear spread to rise to 29.9.  Again, that indicates the most bullish sentiment since December.

Given the S&P 500 is currently trading at record highs, we wanted to check in on how sentiment currently stacks up versus past record closes for the S&P.  As shown, it looks a bit more optimistic than normal given where the market is trading as bullish sentiment has historically averaged a reading of 41% when the S&P 500 was at record highs. While the gap between the historical average and now is less dramatic, bearish sentiment likewise shows greater optimism now than in the past.

Finally, we would note that it is not only the AAII survey which is showing high levels of optimism.  Factoring in other weekly sentiment surveys, the Investors Intelligence survey saw the highest number of bulls since July 2021 and the NAAIM Exposure Index showed active investment managers added long exposure to equities in the most recent week.  Putting them all together into our Sentiment Composite, aggregate investor sentiment now ranks in the 98th percentile of all periods since data began in 2006 and a hair below those from last December. Before that, the only periods with similarly elevated levels of sentiment were December 2010, December 2013, early 2015, around the new year of 2018, the end of 2020, and the spring of 2021.