Markets
The S&P 500 Is Near Its High. Why Are 84% of Its Stocks Far Below Theirs?
By Bear Creek Staff, . Bear Creek Capital Network.
The S&P 500 is near a record high, but most of its stocks are far below their own peaks.
By October 13, 84% of the 503 stocks in the index sat at least 10% under their own record prices, according to a Motley Fool analysis drawing on figures compiled by The Kobeissi Letter. The index itself had closed at a record of about 7,819 on October 5 and was still within a few points of it on October 13.
What the 84% measures
Each stock is measured against its own best price, whenever that peak was set, and the analysis does not say when. So the figure does not mean that 84% of the index fell together this autumn. It means most of the index's stocks trade well below their own best prices, while the index itself sits near its record.
The picture holds at a deeper cut, too: 59% of the index's stocks are at least 20% below their highs. Real estate is the weakest sector, with 97% of its stocks 10% or more under their peaks. Energy is the strongest, at 62%.
Why the index still looks healthy
The S&P 500 weights each company by its market value, so its largest members move it the most. When a small group of very large companies rises, it can carry the index to a record while most of the other names drift lower. An equal-weighted version, such as the Invesco S&P 500 Equal Weight ETF (RSP), gives every company the same say. The Motley Fool describes the gap that has opened between the two as historic.
The one comparison worth knowing
Bank of America's Global Investment Strategy team has charted past periods when a single hot theme came to dominate US stocks. One of them was early 2000, when technology and telecom stocks made up 41% of the S&P 500. By the same research, as reported by the Motley Fool, the 10 largest stocks Bank of America counts as AI-related now make up about 40% of the index. The report does not list which companies those are. After the dot-com peak in March 2000, the S&P 500 lost 49% and the Nasdaq 78%.
That comparison shows how much of the market now rests on a few companies. It does not say when, or whether, that changes. As the Motley Fool's writer notes, concentration data cannot pinpoint when a turn comes.
What it means for investors
A strong index return can hide very different results underneath it. The return on an S&P 500 index fund now depends heavily on a small group of very large companies. Someone who holds a spread of individual stocks, or an equal-weighted fund, may be looking at a very different result from the headline number.
Bear Creek Capital Network publishes content for informational and educational purposes only. Nothing in this article constitutes financial, investment, tax or legal advice, or a recommendation to buy or sell any security. Consider your own circumstances and consult a qualified professional before making financial decisions.