(Bloomberg) — The S&P 500 is still technically stuck in a bear market, but a closer look below the surface shows that most of its stocks are in the midst of a major rally.
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While the benchmark is down 17% from its Jan. 3, 2022 all-time high, about 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 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 ripping higher? Blame the ugly performance of a handful of technology-related stocks whose huge market values give them more leverage over the index weighted by market cap. 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.
For example, Apple and Microsoft, each with a market capitalization of about $2 trillion, have a combined weighting of more than 11% in the S&P 500. That gives them more control over the index’s performance than any of the energy, materials, and utilities companies in the world. the yardstick. So even though American Airlines Group Inc. Up 34% this year, the 0.03% weighting does not lift the index.
To get a broader picture of what’s happening with stocks, some market professionals look to a version of the S&P 500 where all stocks are weighted equally. That index beats the S&P 500 by the widest margin since 2019 and is up 17% since its low on Sept. 30.
According to Dan Wantrobski, director of research at Janney Montgomery Scott, it’s important to track the equal-weighted index because it offers a “deeper look” at the overall recovery. “This gives us more confidence that the stock will continue to bottom/bottom this year,” he said.
Stocks rallied in the first two weeks of the year on optimism that the cooling of inflation will prompt the Federal Reserve to ease its most aggressive rate hike campaign in decades. The S&P 500 rose 2.7% this week after government data showed consumer prices rose at their slowest pace in more than a year in December.
Communications services and consumer discretionary were among the top performers in the S&P 500, with companies such as Warner Bros Discovery Inc., United Airlines Holdings Inc. and Carnival Corp. who achieved more than 20%.
Strength outside of the technology sector is a positive development for the average investor, said Phil Blancato, CEO of Ladenburg Thalmann Asset Management.
“A diversified portfolio lowers risk and gives you the opportunity to outperform,” he said in an interview. “Diversification beats concentration.”
At the same time, investors’ growing risk appetite in hopes of a less aggressive Fed has also boosted some of the worst-performing companies of 2022, such as Amazon, which is up 17% in the first nine trading days of the year. However, not all technology stocks participated. Apple and Microsoft are still trailing the S&P 500.
Following this week’s inflation data, investors are turning their attention to earnings season, which kicked off Friday with results from JPMorgan Chase & Co. and Wells Fargo. The results of the largest US banks were met with a less than enthusiastic response from Wall Street. The Fed’s next interest rate decision is scheduled for February 1, and the market expects a rate hike of 25 basis points, down from December’s 50 basis point hike.
–With help from Matt Turner and Jessica Menton.
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