Tech’s Slump Camouflages a Rally Sweeping Across Most of S&P 500

(Bloomberg) — The S&P 500 is technically still mired in a bear market, but a closer look beneath the surface shows that most of its stocks are in the midst of a big rally.

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While the benchmark is down 17% from a record high set on Jan. 3, 2022, about three-quarters of the stocks in the index are up 20% or more from their 52-week lows, according to the compiled data. from Bloomberg. Among the standouts are Wynn Resorts and Boeing Co., both of which are up more than 60% in the past three months alone.

So why isn’t the S&P 500 higher? Blame the dismal performance on a number of technology-related stocks, whose massive market values ​​give them greater leverage over the market-cap-weighted index. Only five stocks — Apple Inc., Amazon.com Inc., Tesla Inc., Microsoft Corp. and Meta Platforms Inc. – are responsible for nearly half of the S&P 500’s losses over the past 12 months.

Apple and Microsoft, for example, each with market values ​​of roughly $2 trillion, have a combined weighting of more than 11% in the S&P 500. That gives them more influence over the performance of the index than all the energy, materials, and municipal services at the reference point. So, although American Airlines Group Inc. is up 34% this year, its 0.03% weighting does little to boost the index.

To get a broader picture of what’s going on with stocks, some market professionals are looking at a version of the S&P 500 that puts all stocks in an equal weight. The index is beating the S&P 500 by its biggest margin since 2019 and is up 17% since hitting a low on Sept. 30.

The equal-weighted index is important to track because it provides a “deeper look” at the overall recovery, according to Dan Wantrobski, director of research at Janney Montgomery Scott. “This gives us more confidence that stocks should continue to base/decline this year,” he said.

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Stocks have risen in the first two weeks of the year amid optimism that cooling inflation will prompt the Federal Reserve to ease its most aggressive rate hike campaign in decades. The S&P 500 advanced 2.7% this week after government data showed consumer prices rose in December at the slowest pace in more than a year.

Communications services and consumer discretionary stocks have been among the best performers in the S&P 500, with companies such as Warner Bros. Discovery Inc., United Airlines Holdings Inc. and Carnival Corp. collecting more than 20%.

The strength outside the tech sector is a positive development for the average investor, according to Phil Blancato, chief executive officer at Ladenburg Thalmann Asset Management.

“A diversified portfolio lowers risk and gives you an opportunity to outperform,” he said in an interview. “Diversification is defeating concentration.”

At the same time, investors’ growing appetite for risk amid hopes for a less aggressive Fed has also lifted some of 2022’s worst performers, such as Amazon, which is up 17% in the first nine days of trading. of the year. However, not all tech stocks have rallied. Apple and Microsoft still trail the S&P 500.

After this week’s inflation data, investors are turning their attention to the earnings season, which kicked off Friday with results from JPMorgan Chase & Co. and Wells Fargo. The results from the biggest US banks were met with a less than enthusiastic response from Wall Street. The Fed’s next interest rate decision is due on February 1 and the market is anticipating a 25 basis point rate hike, from the 50 basis point increase in December.

–With assistance from Matt Turner and Jessica Menton.

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