The New Normal: S&P 500’s Rollercoaster Ride and the ‘Weirdest Bull Market’ Yet

Approaching the close of 2023, the S&P 500 index is edging towards a fresh record high. However, a disconcerting reality for stock pickers unfolds as numerous index constituents still lag far behind their January 2022 peaks.

This disparity has given rise to a notable schism in the U.S. market, creating what eToro’s Callie Cox aptly terms “the weirdest-looking bull market in decades.” Callie Cox and Apollo’s Torsten Slok have been meticulously monitoring the performance of S&P 500 members relative to the index. Slok highlighted in recent commentary that the proportion of S&P 500 underperformers is poised to hit a record in 2023, currently standing at 72%.

This divergence isn’t a recent development. Throughout the year, “bad breadth” in the U.S. stock market has been a predominant topic on Wall Street. Analysts express apprehension about the market becoming excessively top-heavy, with a select group of megacap stocks, dubbed “the Magnificent Seven,” spearheading nearly all of the index’s gains, fueled by the artificial-intelligence boom. This exclusive group comprises Apple Inc., Nvidia Corp., Tesla Inc., Inc., Microsoft Corp., Alphabet Inc., and Meta Platforms Inc.

This skewed performance has resulted in the S&P 500 outperforming its equal-weight counterpart by over 12 percentage points this year. As of Wednesday morning in New York, the S&P 500 had surged 24.4% in 2023, nearing its record close from January 3, 2022, at 4,777, according to FactSet data.

Conversely, the Invesco S&P 500 Equal Weight ETF (RSP), tracking the equal-weight index, recorded a modest 11.8% increase at $158.07 a share. Notably, RSP is on the brink of a “golden cross” as its 50-day moving average approaches its 200-day moving average. This development coincides with a narrowing performance gap among market laggards, with traders factoring in multiple Federal Reserve interest-rate cuts in 2024.

The Nasdaq-100 (NDX) has surpassed expectations, posting a remarkable 54% surge in 2023, as per FactSet data.

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