Chip maker Nvidia is among seven heavyweights driving the performance of US stock markets. Photograph: Justin Sullivan/GettyIt really is a tale of two markets right now. Mega-cap tech stocks such as Nvidia, now valued at more than $1 trillion, have been soaring, but everyone else? Not so much. The S&P 500 is up 9 per cent this year, but all of those gains are due to the performance of only seven technology stocks.
The five largest S&P 500 stocks – Apple, Microsoft, Alphabet, Amazon, and Nvidia – have outperformed the index by some 30 percentage points this year. In contrast, the equal-weighted version of the S&P 500, which dilutes the impact of mega-cap companies by allocating each component stock the same weight, is actually down 1 per cent.
The current performance divergence is extreme – Bloomberg data shows the equal-weight S&P 500 is losing out to its cap-weighted counterpart by a wider margin since at least 1990. In short, market breadth is “awful”, as Goldman Sachs put it last week. Although the S&P 500 hit new highs for the year last week, just 40 per cent of stocks were trading above their 200-day moving average, compared with 80 per cent in early February.