S&P 500 hits another record high, “little margin of safety”

Markets were mixed on Friday.

The S&P 500 rose 0.3 percent to a record high and the Nikkei 225 rose 0.2 percent. However, the STOXX Europe 600 fell 0.2 percent.

US stocks were boosted by positive economic data. The IHS Markit flash manufacturing PMI rose to 53.6, a 19-month high, while the flash services PMI rose to 54.8, a 17-month high.

However, Steve Goldstein at MarketWatch observed that the US market rally has been dominated by the bigger companies.

Goldstein cited Michael Batnick, the director of research at Ritholtz Wealth Management, who noted that the largest decile of companies by market capitalisation is 4.3 percent from their 52-week high while the smallest decile is 46.8 percent away.

Goldstein also cited Christopher Pavese, chief investment officer at Broyhill Asset Management, who noted a similar divergence in performance between the MSCI All-Country ex-US index and the S&P 500.

“The consensus is eager to look past today’s earnings, through to next year’s V-shaped rebound in profits,” said Pavese. “But we are a long way from anything that resembles normal, as profit margins are likely to remain depressed by revenue shortfalls and incremental costs for years. As a result, today’s stock prices, still levitating near all-time highs, leaves little margin of safety and even less to get excited about.”