Executive Summary 

• Market breadth was unusually narrow in the first half of the year, but that appears to be changing as participation in the bull market is beginning to broaden out.​
• The post-CPI rotation has benefitted several out-of-favor portions of markets, including small caps, value stocks and more diversified investment processes.​
• The equal-weighted S&P 500 has outperformed significantly, and outperformance of this magnitude tends to be followed by strong further relative returns​.
• Investors should continue to favor a more diversified approach to equity investing that avoids the pitfalls of market concentration​​.

Data shown are the percent of constituent stocks in the S&P 500 index that are outperforming the index itself. Figures for July ’24 are month-to-date through the date shown. The dashed line represents the median of the dataset. The S&P 500 is a market capitalization weighted index of U.S. large cap stocks. Past performance may not be indicative of future results. One cannot invest directly in an index.​

• Over the long-run, roughly half of the stocks in the S&P 500 outperform the index itself in an average year, but 2023 and the first half of 2024 have seen unusually narrow rallies.​
• The second half of the year has kicked off with a reversal of fortunes, as 66% percent of the index is outperforming so far in July.

The post-CPI rotation has benefitted several out-of-favor portions of equity markets​

Data shown are year-to-date total returns for several asset classes before the June Consumer Price Index (CPI) report on July 11th in blue and after in yellow. Each asset class is represented by the following indices: Mega Cap (Russell Top 50), Large Cap Growth (Russell 1000 Growth), Large Cap (S&P 500), Large Cap Value (Russell 1000 Value), Large Cap Equal Weight (S&P 500 Equal-Weighted), Small Cap (Russell 2000). Past performance may not be indicative of future results. One cannot invest directly in an index.​

• The June CPI report was a key catalyst for a rotation in equity markets, as it increased the odds that the Fed will be able to cut rates later this year.​
• The rotation since that report has seen several out-of-favor portions of the market begin to outperform, such as small caps, value stocks and more diversified investment processes.​​

Equal-weight outperformance of this magnitude tends to be followed by strong further relative returns

Data shown in the chart are 5-day rolling total returns for the equal-weighted S&P 500 minus the standard market capitalization weighted S&P 500. Data shown in the table are average forward 12-month forward returns for the equal weighted S&P 500 minus the market capitalized weighted S&P 500 and the share of those returns that are positive following 1-week periods of the equal weighted S&P 500’s outperformance. Past performance may not be indicative of future results. One cannot invest directly in an index. ​

• Last week marked the fourth best one-week relative performance cycle of the equal weighted S&P 500 vs. the standard market capitalization weighted version since 2002.​
• Historically, the momentum after such strong periods of outperformance usually carries through to the year thereafter.​​