For decades, the S&P 500 has been the preferred benchmark for monitoring the performance of the U.S. stock market. But these days, it is behaving less like a barometer of market health and more like a funhouse mirror. Over the past few months, the performance of the premier U.S. equity index has grown increasingly disconnected from that of the average U.S.-traded stock.
The changing relationship became a big story in markets in September, so much so that it inspired Goldman Sachs derivatives strategist Brian Garrett to point out in commentary shared with clients over the weekend that the S&P 500 was “no longer behaving like the clearing price for risk” in the U.S. market. To put it more plainly: The index is no longer representing the condition of the broader market — it barely reflects what is happening with its own members. What to look for in the next wave of IPOs, after SpaceX made history Play video: What to look for in the next wave of IPOs, after SpaceX made history For example, the median S&P 500 stock was down roughly 17% from its 252-day high, according to a recent analysis from Warren Pies at 3Fourteen Research.
But the S&P 500 finished Monday just 0.3% below its most recent record close in August. This largely reflects the growing influence of a handful of mega-capitalization companies, including the “Magnificent Seven,” a group of some of the largest U.S.-publicly traded companies that saw big gains earlier in this bull market. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it.
I would like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time. **Read**: You might be shocked by how many stocks are in a bear market right now. Taken together, members of the Magnificent Seven — which comprises Microsoft , Apple , Nvidia , Alphabet , Meta Platforms , Amazon.com and Tesla — finished Monday with a market capitalization just shy of $25 trillion, — a new record high, according to Dow Jones Market Data.
Due in large part to the growing influence of artificial intelligence, the S&P 500 has lately seemed untethered from virtually every other risky asset, aside from itself. Whether it be other equity indexes or even credit spreads — another barometer of investors’ risk appetite — America’s favorite index is becoming increasingly unmoored from these longstanding historical relationships, Garrett said. As of Monday, the rolling three-month correlation between the S&P 500, which is market-capitalization weighted, and the S&P 500 equal-weight index was drifting back toward its lowest levels in recent memory, according to Dow Jones Market Data.
For investors who own fewer shares of the market’s winners than the benchmark, weak breadth can of course be a problem. As for whether or not it ultimately leads to declines in the broader index, history doesn’t offer a clear verdict. There is certainly salient evidence to the contrary: During the dot-com boom, the New York Stock Exchange advance-decline line peaked in 1998, data showed.
Extract — continue reading at the source.
