Young Research & Publishing Inc.

Investment Research Since 1978

Compensation was paid to utilize rankings. Click here to read full disclosure.

  • About Us
    • Contributors
    • Archives
    • Dick Young’s Safe America
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Retirement Compounders®
  • Free Email Signup

ALLIGATOR MARKET: Calm Surface Hides Danger Below

June 6, 2023 By E.J. Smith

By SCP255 @ Shutterstock.com

The S&P 500 is a market cap-weighted index meaning the largest companies by market cap have the greatest impact on its direction. A handful of companies comprise a third of the index today. I explained this in-depth in my series, The Truth Behind the S&P 500. Caitlin McCabe explains in The Wall Street Journal that despite a rally in the overall index driven by a few star names, investors are worried about what lies beneath. She writes:

Life Comes at You Fast. Slow It Down with My Friday Email. It’s Free.

Major indexes have overcome a series of challenges to power higher this year. But some investors are worried that this performance rests on just a few heavyweight stocks.

The S&P 500 has climbed 11% this year and is poised to enter a new bull market after rising almost 20% from an October trough. Most major indexes in Europe are up more than 10% in 2023, with France’s CAC 40 among those that are hovering near all-time highs.

The performance has surprised asset managers who began the year on the sidelines amid concerns about the trajectory of interest rates and the global economy. Indexes have shrugged off a banking crisis and debt-ceiling standoff in the U.S., and worries of recession in Europe.

But for some investors and analysts, things don’t look so cheery below the surface. Market breadth, which reflects how many stocks participate in a rally, has narrowed, signaling possible trouble ahead.

“If you look at the S&P 500 index level, you might be fooled into thinking that actually the market is doing really well, that activity is strong and that profit growth is in full recovery mode,” said Seema Shah, chief global strategist at Principal Asset Management. “But that would be quite an incorrect reflection of what’s going on under the surface.”

The past few years have been periodically marked by U.S. technology-stock dominance. But that grip has tightened recently.  Eight of the largest tech and growth companies in the U.S.—Alphabet, Amazon, Apple, Meta, Microsoft, Netflix, Tesla and Nvidia—now account for 30% of the S&P 500’s market capitalization. That is up from about 22% at the start of the year.

One sign of narrowing breadth can be seen in how the S&P 500 has fared this year compared with its equally weighted counterpart, which gives equal sway to every company in the index. Compared with the traditional index’s 11% gain, the equally weighted version has added 1.1%. That is the largest-ever outperformance by the S&P 500 on a year-to-date basis, according to a Dow Jones Market Data analysis through June 5, based on data starting in 1990.

Other indicators of market breadth have also flashed warning signs. The share of S&P 500 stocks closing above 200-day moving averages fell as low as 38% last week.

A market is generally considered healthier when more stocks are rising together, and history shows that broader rallies are typically more sustainable.

Action Line: Call it what you want, but the storm clouds have formed, and it’s hard to believe this will last forever. Stick with me.

Originally posted on Your Survival Guy. 

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • JUST BELOW THE SURFACE: Stock Index Strength Hides Danger Below
  • An Inebriated Stock Market
  • MARKET TURNING: Canada’s Housing Market Turmoil
  • Author
  • Recent Posts
E.J. Smith
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@youngresearch.com

Click here to sign up for my free monthly Survive & Thrive letter.
Latest posts by E.J. Smith (see all)
  • Investing Habits of the Fairly Wealthy: #10 Powerball - September 29, 2023
  • “Then One Day the Grandfather was Gone” - September 28, 2023
  • “No Way I’m Spending That Much on Those” - September 27, 2023

Search Young Research

Most Popular

  • Wellington and Wellesley Funds Not Managed by Vanguard
  • The Single Worst Market Timing Event in History
  • “No Way I’m Spending That Much on Those”
  • Should America Move Closer to the Saudis, or Push them Away?
  • The War Machine's Manpower Problem
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?
  • The Power of a Compound Interest Table
  • Will the Fed Hold Up Its End of the Bargain?
  • “You Didn’t Eat That Again, Did You?”
  • Profits Becoming Elusive in China

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

The Importance of a Balanced Portfolio

Invest with Peace of Mind and Comfort

What Kind of Life Are You Investing For?

RSS The Latest at Richardcyoung.com

  • Bidenomics: Distrust of Public Officials and Institutions
  • Investing Habits of the Fairly Wealthy: #10 Powerball
  • “The Goal Is to Break Down the Individual”
  • Blackwater Founder Erik Prince a Hillsdale College Graduate
  • The Point to the GOP Debates
  • “The Economy Is Buried Under Trillions in Debt”
  • Will Desperate Democrats Replace Biden with Michelle or Hillary?
  • Your Survival Guy: “Life on Main Street Hasn’t Been This Hard in a While”
  • A Government of Control Freaks
  • The Elephant in the Room

RSS The Latest at Yoursurvivalguy.com

  • Investing Habits of the Fairly Wealthy: #10 Powerball
  • Your Survival Guy: “Life on Main Street Hasn’t Been This Hard in a While”
  • Your Retirement Life: Striped Bass Fishing off Block Island
  • “Then One Day the Grandfather was Gone”
  • How Joe Biden Raised Oil Prices
  • Is the Philadelphia Looting Spree the Wake-up Call America Needs?
  • “No Way I’m Spending That Much on Those”
  • What Trade Policy Serves America’s National Interest Best?
  • California Wants to Make the 2nd Amendment Unaffordable
  • “You Didn’t Eat That Again, Did You?”

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2023 | Terms & Conditions

 

Loading Comments...
 

    loading Cancel
    Post was not sent - check your email addresses!
    Email check failed, please try again
    Sorry, your blog cannot share posts by email.