The performance gap between the cap-weighted S&P 500 — tracked by the SPDR S&P 500 ETF Trust SPY — and its equal-weighted sibling, the Invesco S&P 500 Equal Weight ETF RSP, has blown out to over 4 percentage points in December.
This marks the widest monthly gap since May 2023, reflecting how a narrow group of stocks is shouldering the market's returns in the last month of the year.
As of Dec. 17, only 90 out of 500 stocks in the S&P 500 are in positive territory month-to-date, a shockingly narrow market breadth.
Excluding Nvidia Corp. NVDA, all of the Magnificent Seven stocks — Apple Inc. AAPL, Microsoft Corp. MSFT, Alphabet GOOGL, Amazon.com Inc. AMZN, Meta Platforms Inc. META, and Tesla Inc. TSLA — have posted gains this month.
If Broadcom Inc. AVGO, which recently surpassed the $1 trillion market-cap threshold, is added to the mix, an equal-weighted portfolio of these eight stocks has already delivered a stunning 16% return so far in December.
That stands in stark contrast to the broader market's struggles as the equal-weighted S&P 500 index fell by 3% month to date.
| Name | Price Chg. % (MTD) | Market Cap ($) |
|---|---|---|
| Broadcom Inc. | 48.27 | 1.12 trillion |
| Tesla, Inc. | 37.03 | 1.52 trillion |
| Alphabet Inc. | 16.72 | 2.43 trillion |
| Amazon.com, Inc. | 11.18 | 2.43 trillion |
| Meta Platforms, Inc. | 9.15 | 1.58 trillion |
| Microsoft Corporation | 7.25 | 3.38 trillion |
| Apple Inc. | 6.52 | 3.82 trillion |
| NVIDIA Corporation | -5.94 | 3.18 trillion |
| Average | 16.26% |
Weak Breadth: Bad Sign Or Hidden Opportunity?
Ryan Detrick, CMT, chief market strategist at Carson Group LLC, highlighted a notable trend.
The S&P 500 has now posted 11 consecutive days of more decliners than advancers, tying the longest streak since 1996.
While many investors might view this as a bearish signal, historical data paints a surprisingly different picture.
"Many claim this is bearish, but is it?" Detrick stated. "Looking at the longest streaks ever actually appears to be rather bullish. Significant outperformance across the board out one year."
Here's how the S&P 500 performed historically following similar stretches of negative breadth:
| Date | Days of Negative Breadth | 1-Month | 3-Months | 6-Months | 1-Year |
|---|---|---|---|---|---|
| 9/10/1991 | 8 | -2.1% | -1.4% | 6.0% | 7.9% |
| 6/20/1996 | 11 | -4.3% | 3.2% | 10.5% | 35.6% |
| 12/24/2018 | 8 | 13.3% | 19.3% | 23.9% | 37.1% |
| Average | — | 3.0% | 4.8% | 8.6% | 14.8% |
| All Years Avg | (1950–2023) | 0.7% | 2.2% | 4.4% | 9.0% |
Notably, the historical data shows that returns tend to improve significantly over the next year, with 87.5% of cases showing positive performance after a prolonged stretch of weak breadth.
In essence, bad breadth doesn't necessarily spell bad news. If history holds, weak market participation could signal stronger returns ahead.
Yet investors may have to deal with an increase in volatility and potential for sharp pullbacks.
Adam Turnquist, chief technical strategist at LPL Financial, took a more pessimistic view on the S&P 500's 11-day streak of decliners outpacing gainers.
“The last time this occurred was on June 20, 1996 — only days before a sharp 10% drawdown over the following month that ended almost directly on support from the rising 200-dma. While this does not imply a market top or even correction is imminent, it does add to the evidence of potentially weak footing underneath this latest advance,” he stated.
Growth Sectors Shine, But Broader Rebounds Possible
The performance story has become sharply sector-specific.
Stephen Suttmeier, CFA, CMT, analyst at Bank of America, indicated that December's gains have been heavily concentrated in growth sectors, such as Discretionary, Communications Services and Technology.
"All other sectors showed a negative performance," Suttmeier said, highlighting the underperformance of the equal-weighted S&P 500 ETF (RSP). Yet, he remains cautiously optimistic, suggesting of potential “rebounds into year-end for both the NYSE Composite Index (NYA) and RSP."
Read Next:
Photo via Shutterstock.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
