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Buyer Beware: Market Performance Has Been Driven By A Few Stocks

Wow! Buyer beware...It seems like the markets are on the run again this year, but the the market's performance has been driven primarily by a handful of stocks. The performance of the top 10 market-cap tech-heavy stocks is distorting the return perceptions for the broader market. While the price of the cap-size influenced S&P 500 Index is up 14.66% (through 6/25/24), the S&P Equal Weight Index is only up 4.29%. Once again, the largest 10 stocks in the S&P 500 Index are driving ~70% of the index return.


The broader cap-weighted Russell 3000 Index has posted a return of 12.81%, highlighting the influence of cap weighting on returns. Even with 3000 stocks, the top ten cap-weighted stocks have contributed the lion's share of gains year-to-date. The Dow Jones Industrial Average, which is price-weighted and does not heavily concentrate on technology, is only up 3.78%.


Market Charts
Select Index Performance through 6/25/24, Price Return Unless Otherwise Indicated -- Source: Bloomberg

The Russell 2000 Index, home to smaller-sized companies, shows the performance of covering a broad swath of industries and is down slightly by -0.23lb% from a price standpoint. The S&P Midcap 400 Index, covering mid-cap stocks in America, is not faring much better with a modest 5.02% return year-to-date. These smaller and mid-size companies have not been growing as fast as mega-cap companies over the past few years.


If you work at a smaller company that is struggling, not only is their stock price not participating in the new AI bull market, but they may also not be growing enough to increase compensation. This is one of the many reasons why a significant number of Americans feel worse off than they did a few years ago.


With interest rates higher than they have been in a decade, bond yields look attractive. However, total returns from bonds have been far less appealing, with the Bloomberg Aggregate Bond Index garnering a paltry 0.03% in the first half of the year. Yields on dividend stocks offer an additional source of income, with yields in many cases comparable to bonds. The S&P 500 High Dividend Index has delivered a 2.20% price return and a 4.51% total return.


Return-focused investors who fear missing out on the high returns of the hyper-concentrated indexes might experience the opposite, as market returns on the "Magnificent 7" adjust to more normalized levels. When the Fed cuts interest rates in early Fall, we expect the stocks that have been left behind might get a significant lift as rates fall. It pays to diversify because, as we saw in 1995-2000, what goes up fast can also lose returns just as quickly. We believe it pays to have a pro on your side—why not let WBI’s 40 years of experience help you achieve more success?

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Unless otherwise indicated all performance is sourced from Bloomberg.

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