The year 2023 is coming to a close, and the S&P 500 index is on the verge of reaching a new all-time high. However, despite this positive outlook, there is a significant disparity among the index's constituents. Many of them have yet to recover fully from their peak levels in January 2022.
This divergence between the "haves" and "have nots" in the U.S. market has created what experts are calling the most peculiar bullish market in decades. Notably, both Callie Cox from eToro and Torsten Slok from Apollo have been closely monitoring the percentage of S&P 500 members that are underperforming compared to the index. In a recent email commentary, Slok highlighted that this share is on track to reach a record high of 72% in 2023.
The existence of this divergence is not a new phenomenon. Throughout the year, there has been a recurring concern over the lack of breadth in the U.S. stock market. Wall Street analysts have repeatedly expressed worry that the market has become too reliant on a small group of mega-cap stocks, which CNBC's Jim Cramer and various analysts refer to as "the Magnificent Seven." These stocks have been the driving force behind the index's gains, largely due to the boom in artificial intelligence.
While this trend continues to be a focus of discussion, it is clear that it is worsening as time goes on.
The Performance Divide: Select Companies Outshine the Rest
It has been an exceptional year for certain companies in the market, with their stellar performance setting them apart from the rest. Members of this exclusive group include tech giants such as Apple Inc. (AAPL), Nvidia Corp. (NVDA), Tesla Inc. (TSLA), Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), Alphabet Inc., and Meta Platforms Inc.
This significant outperformance by these companies has resulted in the S&P 500 surpassing its equal-weight counterpart by a margin of more than 12 percentage points thus far in 2023.
As of Wednesday morning in New York, the S&P 500 has recorded a remarkable 24.4% increase in 2023, reaching a trading value of 4,777, according to FactSet data. It is now tantalizingly close to its previous record close on January 3, 2022.
In contrast, the Invesco S&P 500 Equal Weight ETF RSP, which closely tracks the performance of the equal-weight index, has achieved a modest gain of only 11.8%, with each share valued at $158.07.
Notably, RSP is potentially on the brink of a "golden cross" occurrence as its 50-day moving average approaches its 200-day moving average. This phenomenon suggests that many of the market's underperforming stocks have narrowed the performance gap, propelled by investors factoring in multiple Federal Reserve interest-rate cuts anticipated in 2024.
Meanwhile, the Nasdaq-100 (NDX) has shown even more impressive gains, soaring over 54% in 2023, according to FactSet data.
The performance divide among companies is evident, with select names consistently outshining their counterparts. As we navigate the market landscape, it becomes increasingly crucial to track and analyze these top-performing companies to make informed investment decisions.