Tech’s slide camouflages a rally that sweeps away most of the S&P 500

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

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While the benchmark index is down 17% from its all-time high set on Jan. 3, 2022, around three-quarters of the stocks in the index are up 20% or more from their 52-week lows, according to data. compiled by Bloomberg. Among the most prominent are Wynn Resorts and Boeing Co., both of which are up more than 60% in the last three months alone.

So why isn’t the S&P 500 rising? Blame the ugly performance on a handful of technology-related stocks whose massive market values ​​give them greater leverage over the market-cap-weighted index. Just five stocks — Apple Inc., 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 about $2 trillion, have a combined weighting of more than 11% in the S&P 500. That gives them more influence over index performance than all energy companies, public materials and services at the reference point. So while American Airlines Group Inc. is up 34% this year, its weighting of 0.03% does little to propel the index higher.

To get a broader view of what’s going on with stocks, some market professionals are looking at a version of the S&P 500 that gives all stocks the same weight. That index is outperforming the S&P 500 by the widest margin since 2019 and is up 17% since hitting a low on September 30.

Tracking the equal-weighted index is important because it offers a “deeper view” of the overall recovery, according to Dan Wantrobski, director of research at Janney Montgomery Scott. “This gives us more confidence that the stock should continue to base/bottom this year,” he said.

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 interest rate hike campaign in decades. The S&P 500 rose 2.7% this week after government data showed consumer prices rose in December at the slowest pace in more than a year.

Consumer discretionary and communication services 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. ralliing more than 20%.

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

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

At the same time, investors’ growing risk appetite amid hopes for a less aggressive Federal Reserve has also boosted some of the worst performing countries of 2022, such as Amazon, which is up 17% in the first few months. nine trading days of the year. However, not all tech stocks have added up. Apple and Microsoft continue to lag the S&P 500.

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

–With assistance from Matt Turner and Jessica Menton.

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