(Bloomberg) — The S&P 500 is still technically mired in a bear market, but a closer look below the surface shows most of its stocks are in the midst of a rally.
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While the benchmark is down 17% from its Jan. 3, 2022 high, about three-quarters of stocks in the index are up 20% or more from their 52-week lows, according to data compiled by Bloomberg. Notable companies include Wynn Resorts and Boeing Co, which are both up more than 60% in the past three months alone.
So why isn’t the S&P 500 going up? Blame it on the ugly performance of a few technology-related stocks whose massive market valuations give them more leverage over the market capitalization-weighted index. Just Five Stocks – Apple Inc. and Amazon.com Inc. and Tesla Inc. and Microsoft Corp. and Meta Platforms Inc. 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 weight of over 11% in the S&P 500. This gives them more influence over the performance of the index than all of the energy, materials, and utilities companies in the index. So, although American Airlines Group Inc. Up 34% this year, its 0.03% weight doesn’t do much to push the index higher.
To get a broader view of what’s happening to stocks, some market professionals watch a version of the S&P 500 that puts all stocks at the same weight. That index is outperforming the S&P 500 by the widest margin since 2019 and is up 17% since hitting its lowest point on Sept. 30.
It’s important to follow the equal-weighted index because it offers a “deeper insight” into the overall recovery, according to Dan Wantropsky, director of research at Janie Montgomery Scott. “This gives us more confidence that stocks should continue to fall this year,” he said.
Stocks rose in the first two weeks of the year on optimism that slowing inflation will prompt the Federal Reserve to ease its most aggressive rate hike campaign in decades. The S&P 500 advanced 2.7% this week after government data showed consumer prices rose in December at the slowest pace in more than a year.
Telecom services and consumer discretionary stocks were among the best performers in the S&P 500, with companies such as Warner Bros. Discovery Inc. and United Airlines Holdings Inc. and Carnival Corp. by more than 20%.
Strength outside the technology sector is a positive development for the average investor, according to Phil Blancato, CEO at Ladenburg Thalmann Asset Management.
“A diversified portfolio reduces risk and gives you an opportunity to outperform,” he said in an interview. “Diversification hit focus.”
At the same time, investors’ growing appetite for risk amid hopes the Fed will be less aggressive has lifted some of the worst performers of 2022, such as Amazon, which rose 17% in the first nine trading days of the year. However, not all technology stocks have joined. Apple and Microsoft still lag behind the S&P 500.
After this week’s inflation data, investors are turning 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 less-than-enthusiastic response from Wall Street. The Fed’s next rate decision is due on February 1 and the market is expecting a 25 basis point increase in the interest rate, down from the 50 basis point hike in December.
— With assistance from Matt Turner and Jessica Minton.
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