(Bloomberg) — The S&P 500 is technically still mired in a bear market, but a better look below the surface shows that almost all of its stocks are within the midst of a giant rally.
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While the benchmark is down 17% from its record high set on Jan. 3, 2022, about three-quarters of the stocks within the index are up 20% or more from their 52-week lows, based on data compiled by Bloomberg. Among the many standouts are Wynn Resorts and Boeing Co., which have each surged greater than 60% prior to now three months alone.
So why isn’t the S&P 500 ripping higher? Blame it on the ugly performance of a handful of technology-related stocks whose massive market values give them greater influence over the index that’s weighted by market capitalization. Just five stocks — Apple Inc., Amazon.com Inc., Tesla Inc., Microsoft Corp. and Meta Platforms Inc. — are chargeable for nearly half of the S&P 500’s losses over the past 12 months.
Apple and Microsoft, for instance, each with market values of roughly $2 trillion, have a combined weighting of greater than 11% within the S&P 500. That offers them more sway over the index’s performance than the entire energy, materials and utilities firms within the benchmark. So though American Airlines Group Inc. is up 34% this yr, its 0.03% weighting does little to push the index higher.
To get a broader view on what’s happening with equities, some market professionals are watching a version of the S&P 500 that puts the entire stocks at an equal weighting. That index is thrashing the S&P 500 by the widest margin since 2019 and is up 17% since hitting a low on Sept. 30.
The equal-weighted index is very important to follow since it offers a “deeper view” into the general recovery, based on Dan Wantrobski, director of research at Janney Montgomery Scott. “This offers us more confidence that stocks should proceed to base/bottom this yr,” he said.
Stocks have rallied in the primary two weeks of the yr amid optimism that cooling inflation will prompt the Federal Reserve to ease up on its most aggressive interest-rate mountain climbing campaign in many years. The S&P 500 advanced 2.7% this week after government data showed consumer prices rose in December on the slowest pace in greater than a yr.
Communication services and consumer discretionary stocks have been amongst one of the best performers within the S&P 500, with firms like Warner Bros Discovery Inc., United Airlines Holdings Inc. and Carnival Corp. rallying greater than 20%.
Strength outside of the tech sector is a positive development for the typical investor, based on Phil Blancato, chief executive officer at Ladenburg Thalmann Asset Management.
“A diversified portfolio lowers risk and offers you a possibility to outperform,” he said in an interview. “Diversification is thrashing concentration.”
At the identical time, investors’ growing appetite for risk amid hopes of a less aggressive Fed has also lifted a few of 2022’s worst performers, like Amazon, which is up 17% in the primary nine trading days of the yr. Not all tech stocks have joined in, nonetheless. Apple and Microsoft are still lagging the S&P 500.
After this week’s inflation data, investors are turning attention to earnings season, which kicked off on Friday with results from JPMorgan Chase & Co. and Wells Fargo. Results from the most important US banks were met with a less-than-enthusiastic response from Wall Street. The subsequent Fed rate of interest decision is due on Feb. 1 and the market is anticipating a 25 basis-point rate increase, down from the 50-basis point hike in December.
–With assistance from Matt Turner and Jessica Menton.
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