The S&P 500 Index suffered a shallow correction in April before rallying back to new all-time highs. However, the internal market behavior has been poor during the past quarter as the average stock has not participated in this rebound. The largest 8 stocks increased in value by $2.7 trillion in the second quarter while the other 492 members of the index declined by $523 billion. This has left the top 8 stocks representing 35.2% of the entire S&P 500 Index. For the year, the S&P 500 has gained 14.5% whereas the average stock is only up 4.1%, the largest underperformance since at least 1990 . In contrast, the Dow Jones Transportation Average is down 3% this year and the Russell 2000 index of small and mid-sized companies is little changed. While the performance in the stock market is very concentrated, the warnings coming from consumer-facing companies are broadening. Over the past few months, a diverse group of companies have reduced earnings guidance based on a weakening economy. This is leading to further job cuts and business closures. At the same time, the housing market remains frozen and new building permits for industrial and multi-family projects are contracting quickly. These dynamics reflect a slowing economy and a large segment of society that is struggling after several years of high inflation. A few stocks are beginning to reflect these realities, but the overall index continues to be pulled up by the trillion-dollar tech companies.
Categories: Uncategorized
