Key insights
- The S&P 500 and Nasdaq reached new record highs, but market breadth is questionable. The S&P Equal Weight Index is underperforming the market-cap weighted S&P 500, suggesting that gains are concentrated in the largest stocks, particularly in Technology and Consumer Discretionary. This narrow leadership could be a bearish signal, indicating vulnerability if these sectors falter.
US stock futures (ES=F, NQ=F, YM=F) edge higher Thursday morning after the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) closed yesterday's session at new record highs.
Morning Brief Anchor Julie Hyman and Yahoo Finance Head of News Myles Udland examine the year-to-date moves across sectors and how the market indexes are holding up compared to their equal-weight counterparts.
Okay, so there's a couple different ways to look at us. So, I have up uh the Yahoo Finance interactive if we can bring that up. Um and what I'm looking at is the S&P 500, which as we know is market cap weighted versus the S&P Equal Weight Index. Now, normally this is thought of as a way of of measuring, you know, how many of the stocks in the S&P 500 rally during a given period. So what this shows is the equal weight underperformed the S&P 500, implying that it was the heaviest weighted stocks that pulled things higher, but not all of this, not even a majority of the stocks in the S&P went up during this period. So this is the two-day chart, right? That's the two-day. Here is the year-to-date chart, which shows the equal weight gaining. But it's unusual really, if you look over the past year, the purple line's on top. If you look over the past two years, the purple line's on top. If you look over the past 10 years, the purple line's on top because tech is so heavily weighted and tech has outperformed. Can I do one more?
More, yeah.
Okay. One more. Another way to look at is this is to look at the groups in the S&P 500. So here's what we saw yesterday. Tech XLK in the upper left corner uh with consumer discretionary also. By the way, Amazon's in consumer discretionary. And then you had industrials and materials, a lot of the um sort sort of a cyclical, actually a cyclical defensive mix. So here's the two days, over that two-day rally that pushed us to new records, it was these three groups.
Tesla's in discretionary, too. That's a big thing, too.
Tesla's in discretionary, XLK Tech, uh XLC Communications. So all of that helping the most. Um, and then if you look at the year to day for this chart, it looks quite different, right? Because there was a broadening that began the year and sort of continued to some extent. So, I guess the question is, is this now a a reassertion of that tech heavy trade pulling everything higher? I mean, for a couple days, is that what it's going to be? I don't know. I mean, everybody is still um sort of saying we should continue to see the broadening trend that started the year, maybe come back. But it's just interesting that over the last two days, it was different.
Yeah, I mean, I think this is exactly what you want to see in the stock market.
Which part?
Exactly what we've seen the last two days, and what we saw at the beginning of this year.
So in other words, all of these people saying, like, we need broadening, we need broadening, we need broadening.
We got it.
But the other Look at this.
Sure.
But the other, like, the thing I always push back against with the, we need broadening is like, we didn't have broadening and we did just fine. In other words, like we saw record after record after record without broadening, with just large cap tech. So if you just held the index, guess it's not a problem that we didn't have broadening for a long time.
Of course it's not a problem, right?
But is it good that we now have broadening? Sure.
I guess the thing is, um yeah, because this this what catalyzed this discussion was this idea that, well, not idea, the fact that, technically, there were more, a few more stocks in the index yesterday in the S&P 500, um that were down than higher. So the the balance was weighted to the downside. More than 250 stocks were lower yesterday as the index made a record high. But that that flipped earlier this year, where you had more stocks that were higher and a few, you know. So, like, this is just the I think if you want to be set, like asserting yourself, pounding the table right now, saying, see, we remain in a bull market and this is super constructive heading into the end of this quarter through the balance of this year. I'm looking for S&P 8,000. This is exactly the kind of price action that you would be looking for. Leadership taking over from other pockets of the market. Because in addition to the Magnificent Seven names, which to your point, they're going to move the market on a larger proportional basis because that group of stocks is about 30 to 40% of the market cap, depending on exactly where we're sitting. That group was higher, but the next group right behind it were all the software names which have been beaten down significantly. None of those names, by the way, are anywhere near their own individual record highs. It's just that those were the names in yesterday's market that were doing a lot of the leading, I would almost say following behind the Mag-7. Or maybe they're creating the draft and the Mag-7 is following uh in that wake. However you want to analogize it, but I, I think that this whole notion, um like I think there's nothing to be worried about. Actually, it's an even more positive development, um than perhaps even the staunchest tech bulls could have come up with. Because you had the rally, or you had the broadening we began this year, you have that quilt as it were among the sectors that you were showing, where you've got all these sectors that haven't been participating over the last several years doing the heavy lifting to start this year and just as that trade, let's just say, kind of hits neutral, boom, AI comes in to fill the gap.