If you didn't look below the surface, you might have missed the mayhem of June and July.
The overall market barely budged, dropping less than 5%. But everything AI-focused took a beating.
The tech sector dropped 16%... Semiconductors entered a bear market... And the previously red-hot South Korean stock market collapsed nearly 40%.
Now, those trends have reversed. AI stocks have bounced higher... along with a lot of other stocks. That recovery recently sent the S&P 500 Index to a new 52-week high.
We want to pay attention to three specific sectors that made new highs, though...
You see, this is a rare combination of winners. And history shows their corresponding surges could signal 13% gains for the overall market over the next year.
Financials, Healthcare, and Industrials All Hit Highs
In a healthy bull market, lots of different stocks go up. We want to see the broad market rise, not just a few stocks pushing the S&P 500 higher.
That's what makes the recent market action so promising. While the AI trade took a beating, other sectors stepped up to fill the void.
That strength hasn't faded, even as the AI trade has bounced back. We can see this by looking at which areas of the market are hitting highs...
Again, the recent AI bounce is what pushed the S&P 500 to its new 52-week high. But it pushed a specific combination of sectors to new highs, too: industrials, healthcare, and financials.
You can see the breakouts in the chart below...
This probably isn't the group you'd expect to see hitting highs during a technology boom. But these sectors are all critical to the economy. And according to history, this is a strong backdrop for further gains.
To see it, I looked at cases when the overall market and these three sectors hit new 52-week highs together. That has happened 22 times since 1990... And these events have been good times to buy stocks. Take a look...
Betting on the U.S. stock market has been a phenomenal idea over the long term. The S&P 500 has grown 8.8% per year since 1990. But you can do even better after these three sectors hit new 52-week highs...
Similar instances led to gains of 3.4% over three months, 7.9% over six months, and 12.8% over a year. Plus, the market was higher a year later 86% of the time.
Tech stocks aren't back to their previous highs yet. But in the meantime, other areas are picking up the slack.
That's what we like to see. It's a sign of a healthy market.
Lots of companies are winning today. That tells us the stock market boom can continue... and that you should stay long.
Good investing,
Brett Eversole
Further Reading
For years, investors rewarded companies simply for having an AI story. That's changing. As AI spending continues to reach new highs, the market is starting to separate companies that can monetize the technology from those still asking investors to wait.
You don't have to know which company will eventually win the AI race to profit from the trend. The businesses building the infrastructure have a clear advantage: They'll make money regardless of which companies come out on top.