The US stock market has moved into negative territory at least since the beginning of the year.
The S&P 500 Equal Weighted Index, which gives equal value to each stock, is down 0.35 percent since January, data from Refinitiv shows. That’s in stark contrast to the 9.5 percent gain for the benchmark S&P 500, where companies with larger market caps account for a larger share of the index.
While larger gaps have appeared between the two measures of the same stock market’s performance before, “there has never been such a strong negative divergence,” said Manfred Hübner, managing director of research firm Sentix.
The rapidly increasing demand for the largest stocks explains the difference. Riding the AI wave, Nvidia, Microsoft, Alphabet, Apple, Amazon and Meta have added a total of $3.1 trillion in market cap by 2023, according to data from AJ Bell. Excluding their contribution, the S&P 500 has lost $286 billion so far this year.
High-quality, low-risk technology stocks can also be traded like traditional safe assets like U.S. Treasuries and the dollar, “both of which are beset by doubt,” argued Erik Knutzen, multi-asset class chief investment officer at Neuberger Berman. “Maybe market participants are more concerned than they seem,” he said.
Dispelling volatile food and energy prices, core inflation remains stubbornly sticky, suggesting that the US Federal Reserve may need to keep raising interest rates or keep them “high longer” to avoid a recession in the next 12 months. cause.
According to Liz Ann Sonders, chief investment strategist at Charles Schwab, only 12 percent of S&P 500 companies outperform the index over a 60-day period, the lowest level since at least 1993.
Citing actor Michael Caine, Sonders said the surprisingly vibrant S&P 500 now resembles a duck: “calm on the surface but paddling like the dicks underneath.”
Bull runs in the late 1990s and between 2019 and 2021 were similarly driven by a handful of the largest companies, said Thomas Mathews, a market economist at Capital Economics.
The latest bull run slowly expanded as investors gained confidence in the state of the US economy post-pandemic, before waning as interest rates began to rise in 2022.
“If we are right, that growth will come to an end later this year. . . we suspect some pain is coming for the S&P 500, and for global equities in general,” said Mathews.