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

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

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Although the benchmark is down 17% from its peak set on December 3, 2022, according to data compiled by Bloomberg, About three-quarters of the stocks in the index rose 20% or more. Among the stops 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 rising? Blame it on the poor performance of several technology stocks whose large market values ​​give them greater influence over the index weighted by market capitalization. Only five stocks – Apple Inc., Amazon.com Inc., Tesla Inc., Microsoft Corp. and Meta Platforms Inc. – are responsible for almost half of the S&P 500’s losses over the past 12 months.

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For example, Apple and Microsoft, each with a market value of about $2 trillion, weigh more than 11% in the S&P 500. This gives them the highest index performance of all energy, materials and services companies. measure Therefore, although American Airlines Group Inc. Although up 34% this year, its weight of 0.03% does little to lift the index.

To get a broader view of what’s happening with equities, some market experts look at a version of the S&P 500 that holds all stocks in equal weight. That index has trailed the S&P 500 by the widest margin since 2019 and is up 17% since September 30.

According to Dan Wantrobski, director of research at Janney Montgomery Scott, the weight-equal indicator is important to track because it provides a “deeper view” of overall well-being. “This gives us more confidence that stocks should continue to base/below this year,” he said.

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Stocks have rallied in the first two weeks of the year on optimism that cooling inflation will lead the Federal Reserve to ease its toughest interest rate hike campaign in decades. The S&P 500 advanced 2.7% this week after government data showed consumer prices rose at the slowest pace in a year in December.

Communications services and consumer discretionary stocks are among the best performers among the S&P 500, with companies like Warner Bros. Discovery Inc., United Airlines Holdings Inc. and Carnival Corp. gathered more than 20%.

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

“A diversified portfolio reduces risk and gives you an opportunity to succeed,” he said in an interview. “Diversity is about concentration.”

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At the same time, investors’ appetite for risk amid expectations of a less aggressive Fed lifted some of the worst performers of 2022, such as Amazon, which is up 17 percent in the first nine trading days of the year. However, not all tech stocks are involved. Apple and Microsoft still lag behind the S&P 500.

After this week’s inflation data, investors are focusing on the earnings season, which begins Friday with JPMorgan Chase & Co.’s results. and started 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 on February 1 and markets are expecting a 25 basis point hike, up from a 50 basis point hike in December.

– With help from Matt Turner and Jessica Menton.

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