This Market's Rally Isn't Healthy
The stock market seems incredibly strong right now.
Wall Street headlines are celebrating daily.
Corporate profits are beating expectations at a rapid pace.
And the major market indexes are hovering near all-time highs.
If you only look at surface-level numbers, everything seems fine and dandy... But a closer inspection reveals a deeply split market.
Simply put, the rally we're seeing today is not healthy. It's highly concentrated and driven by speculative trading.
To show you what I mean, let's first look directly at the corporate fundamentals...
First-quarter earnings for 2026 were exceptionally strong. Businesses outperformed what analysts predicted just a few months ago by a whopping 9.2%.
As you can see below, that's the single strongest earnings beat since the post-pandemic boom of late 2021...
Over the past few years, earnings surprises averaged between 3% and 5%. The recent 9.2% blowout means businesses are managing higher costs better than expected...
Companies are making a lot of money.
This should be a clear buy signal, right? If profits are exceeding expectations at a five-year high, most stocks should be doing well. Standard financial logic says that stock prices follow profits.
But that's not what we're seeing today...
While the S&P 500 Index is near record highs, the current rally is very uneven. It's concentrated in a tiny group of stocks known as the "Retail Favorites." This basket, which is mainly composed of popular AI and tech names, has surged in value recently.
At the same time, individual retail trading volume has soared.
You can see this dynamic in the chart below... Trading volume recently rose to nearly 900 million shares from about 700 million shares. This spike lines up with the performance of the Retail Favorites stocks.
When retail volume spikes, these favorite stocks easily beat the S&P 500 Equal Weight Index, which treats all 500 companies equally. That's because retail traders typically don't buy boring, cash-flow-heavy businesses. They pile into popular momentum stocks.
And because the main S&P 500 is weighted by market cap and doesn't treat all companies equally, a massive surge in a few mega-cap stocks pulls the entire index up.
So the market strength we're seeing today is a bit misleading. It's not a broad rally across a majority of stocks. It's being driven by speculative retail traders pouring into a very small number of popular companies.
Another way to look at it, the percentage of S&P 500 stocks at 20-day highs is unusually low for a bull market...
For real strength behind the rally, we'd want to see closer to 55% of stocks trading at 20-day highs.
This market split leaves individual investors with a clear choice...
You can chase the crowd and buy into a few expensive momentum stocks... Or you can look for stocks where cash flows are stable and valuations remain reasonable.
History shows that speculative retail booms eventually slow down. When retail traders pull back or run out of money to keep buying, artificial price supports disappear. This causes fast and sharp corrections in the market's favorite stocks.
On the other hand, high-moat businesses that stay out of the retail spotlight tend to keep growing over time. They can compound cash flows no matter what the rest of the market is doing.
Don't let the 9.2% earnings surprise mislead you into buying overvalued assets. Look past index headlines.
Remember, your job is to build long-term wealth that lasts across generations.
So let the crowd trade the speculative names and risk losing their shirts. Instead, focus on keeping your capital parked in stable businesses with clear pricing power, strong balance sheets, and a history of steady growth.
These types of companies are exactly what we look for in Retirement Millionaire. As part of the team, I work alongside Doc Eifrig to uncover high-quality businesses built to survive market cycles.
We recommend companies that can earn you reliable gains in the long term, not whatever hot, overvalued stock everyone's already piling into.
To learn more about Retirement Millionaire and how it can help you, click here.
What We're Reading...
- Something different: Five minutes of exercise a day could help millions of people live longer.
Here's to our health, wealth, and a great retirement,
Jeff Havenstein
May 20, 2026