By at least one measure, the U.S. stock market has been in negative territory since the beginning of the year.
The S&P 500 equal-weighted index, which gives equal value to stocks, has fallen 0.35% since January, according to Refinitiv data. This is in stark contrast to the 9.5% gain in the benchmark S&P 500, where companies with larger market caps account for a larger share of the index.
Manfred Hübner, managing director of research firm Sentix, said that although there has been a larger gap between two measures of the same stock market performance than in the past, “there has been such a large negative divergence. has never been before,” he said.
The rapid rise in demand for mega-cap stocks explains the difference. Riding the AI wave, Nvidia, Microsoft, Alphabet, Apple, Amazon, and Meta added a combined $3.1 trillion to their market capitalization in 2023, according to AJ Bell data. Ignoring their contributions, the S&P 500 has shed $286 billion so far this year.
High-quality, low-risk tech stocks may also be starting to trade like traditional safe haven assets such as U.S. Treasuries and the dollar, but “both are riddled with questions,” says Neuberger Berman’s multinational firm. Asset class chief investment officer Eric Knutzen argues. “Maybe market participants are more concerned than they look,” he said.
Even with volatile food and energy prices, core inflation remains stubbornly sticky, and the Fed must either continue to raise rates or cut rates to “ suggesting that it may need to be maintained longer.
Only 12% of S&P 500 companies outperform the index on a 60-day trailing basis, the lowest since at least 1993, according to Liz Ann Sonders, chief investment strategist at Charles Schwab. .
Quoting actor Michael Caine, Sonders said the remarkably buoyant S&P 500 now resembles a duck: “Gentle on the surface, but paddles like Dickens below.”
The bull markets of the late 1990s and 2019-2021 were similarly driven by a small number of big players, according to Thomas Matthews, market economist at Capital Economics.
The latter bull market slowly expanded as investors grew more confident in the state of the US economy post-pandemic, but contracted as interest rates began to rise in 2022. The stock market reversed sharply when the dot-com bubble burst.
“If we are correct, growth will slow in the second half of the year . .