It is hard to believe that another six months have passed, but that’s precisely where we are. Objectively speaking, equity markets have had a very strong start to the year, with the S&P up 14% year-to-date.
While the S&P is up considerably, it hasn’t been a typical performance. Specifically, there have been some oddities regarding overall market performance and the changes in individual stocks.
First, remember that the S&P 500 is a market capitalization-weighted index, which means that while there are 500 companies, the largest companies have a much more significant impact on the total performance. In fact, as of mid-June, the largest 30 companies in the index had a combined weighting of roughly 53%.
This leads to the second point: through the middle of this week, the S&P 500’s price had gone in the opposite direction of breadth for five consecutive trading days. This means that if the S&P index went up on a day, more individual stocks went down (or vice versa). And with the concentration at all-time highs, it makes sense why this can happen more frequently. In fact, the only other time a 5-day streak like this has happened since 1990 was in April 1999. Perhaps not coincidentally, the 30 largest stocks were about 42% of the total weight then.
The divergence between price and market breadth has been a persistent theme throughout the year. Notably, 23% of trading days in the first half of 2024 experienced price and breadth moving in opposite directions, matching the record set in 1995. The only other year to come close to this level of divergence was 2000.
The combination has led to some mind-bending performance statistics through mid-June, which the chart below illustrates quite clearly. The S&P 500 was up 14.6% through June 14, with 75% of the total performance coming from the largest ten companies (as measured by market capitalization). Said differently, if instead of investing in the S&P 500, you had a new index called the S&P 490 (excluding the top 10), the year-to-date return would only be 3.5%.
This is truly remarkable, and it shows just how impactful the mega-cap companies’ performance has been so far this year. As we wrap up the first half of 2024, we’ll keep a keen eye for signs of breadth improvement, which would be an even better signal of things to come.
Economy
- Markets were relatively flat in the final week of the first half of 2024. The S&P 500 was down -0.1%, the Nasdaq was down -0.1%, and the small-cap Russell 2000 was up 1.3%.
- The Core PCE price index edged higher by 0.1% from last month. It was the softest increase since November 2023, slowing from 0.3% in the three prior months.
- Personal spending in the U.S. increased 0.2% from the previous month, below market expectations of a 0.3% rise.
- U.S. personal income rose by 0.5% MoM in May, accelerating from a 0.3% increase in April and above market forecasts of a 0.4% increase.
Stocks
- U.S. equities were in negative territory. Materials and Utilities led the decline, while Energy and Communication Services outperformed. Value stocks led growth stocks, and small caps beat large caps.
- International equities closed higher for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased nine basis points to 4.34% during the week.
- Global bond markets were in negative territory this week.
- High-yield bonds led for the week, followed by government bonds and corporate bonds.
