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S&P 500 keeps rising to new peaks, but the U.S. stock market looks 'a bit ragged'

By Christine Idzelis

'The generals are making new all-time highs, but the troops are not necessarily following,' says a Kingsview portfolio manager

The U.S. stock market looks "a bit ragged" after major benchmarks pressed past a series of new peaks this year, according to Paul Nolte, a portfolio manager at Kingsview Investment Management.

The largest stocks are again taking the lead in performance while "the shine has come off the 'reopening' trade," Nolte wrote in a note Monday. The S&P 500 index rose Monday to its 53rd record close of 2021, while the technology-heavy Nasdaq Composite index finished at its 32nd all-time high of the year.

"The generals are making new all-time highs, but the troops are not necessarily following," Nolte said in a phone interview Monday. Small-cap stocks are falling behind, he explained, while an equal-weighted measure of the "top heavy heavy" S&P 500 index has started slipping.

Easy monetary policy has been helping to fuel U.S. stocks higher, said Nolte, seeing potential for a pullback of 3% to 7% as investors "reset expectations."

The S&P 500, a capitalization-weighted index with a large exposure to technology, has risen about 5.3% this quarter based on Tuesday afternoon trading, according to FactSet data, at last check. The Invesco S&P 500 Equal Weight ETF (RSP) is lagging, with a gain of about 3.7% so far this quarter.

Read:The S&P 500 hasn't seen a year-to-date rally this strong since 1997. What's next?

Tech stock valuations are high, according to Nolte. "They've built in very high expectations" for earnings and are priced for "perfection at this point," he said, as many investors continue to view their performance over the past year "as a road map" for the next 12 months and beyond.

Meanwhile, the S&P 500 and Nasdaq were trading slightly down Tuesday afternoon, FactSet data show, at last check. The Dow Jones Industrial Average index , a gauge of blue-chip stocks in the U.S., also edged lower in Tuesday afternoon trading, though not far from its closing peak reached August 16.

Small-cap stocks in the U.S. were up modestly Tuesday afternoon, but are so far showing losses for the third quarter. The Russell 2000 index is down about 1.6% since the end of June, according to FactSet data.

Investors have signaled caution elsewhere in the U.S. stock market.

The healthcare and utilities sectors, which are defensive bets, have seen relatively strong performance this quarter, said Matt Forester, chief investment officer of Lockwood Advisors at BNY Mellon Pershing, in a phone interview Tuesday. Some of the hottest U.S. stocks since the end of June are in those sectors, pointing to "an economic cool-down," the Wall Street Journal reported August 29.

"So you're seeing a little bit more defensive action in the markets," said Forester. "There is some concern about what future growth looks like."

-Christine Idzelis


(END) Dow Jones Newswires

08-31-21 1413ET

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