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The S&P 500’s Narrow Success

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You have been reading the truth behind the S&P 500 for years here on Yoursurvivalguy.com. The top-heavy market-cap weighted index gives investors a distorted view of what’s happening in markets. Now, Hardika Singh reports in The Wall Street Journal that the index has reached record highs on the back of just one sector. She writes:

The S&P 500 is back at record levels for the first time in two years. Information technology is the only one of the index’s 11 sectors that can say the same.

Home to the likes of Microsoft, Apple and Nvidia, the tech sector is riding the mania over artificial intelligence and has propelled the broader market to a record close in five of the last six trading sessions. The S&P 500 is up 2.5% to start 2024, while the tech segment has risen 5.9%.

The 10 other sectors are trading an average of 15% below their all-time highs, and none has set a new record in January. The equal-weighted S&P 500, which gives the same status to the smallest and largest companies in the index, is down 0.3% this year.

The market’s rally was much wider two years ago. Seven other sectors—industrials, financials, consumer staples, real estate, healthcare, utilities and materials—joined tech to trade at new highs in the two weeks preceding the S&P 500’s January 2022 record.

A narrow rally is a potentially worrying sign to some investors and strategists. When just a handful of big stocks are responsible for most of the market’s gains, it becomes more vulnerable to a downturn if a few of those heavyweights stumble, they say.

For example, if six of the biggest tech stocks were to pull back to their 200-day moving averages, it would knock about 5% off the S&P 500, according to an analysis from Bespoke Investment Group. (The 200-day moving average is a widely watched technical indicator used to gauge longer-term price trends.)

Action Line: Top-heavy markets can be unstable. If you want to talk about a diversified portfolio with an emphasis on dividends and income, I’m here. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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