We’ve highlighted the weak breadth in the market for clients for the last several days now, and this afternoon, we wanted to provide another example to add to the growing list. Let’s start with the straight-up performance of the market-cap-weighted S&P 500 (SPY) versus its equal-weighted counterpart (RSP). For the first few months of the year, both indices performed right in line with each other. On a YTD basis, the two had equal returns as late as mid-June, but the equal-weighted index took the summer off and appears like it’s still out on vacation. As the chart below illustrates, the gap between the two indices has been widening for the last four months, with a real acceleration in the last few trading days as SPY has continued higher while RSP has traded lower.

The performance gap has been so wide in the last week, that RSP has underperformed SPY by more than three percentage points. It hasn’t been just a one or two-day move either; through this afternoon, SPY is on pace to outperform RSP by at least 0.5% for the fourth straight day. Since RSP’s launch in 2003, there has never been a streak that long.

While the performance gap between SPY and RSP has been extremely wide, it hasn’t yet reached a historical extreme. The keyword here is “yet.” Over the last six months, SPY has outperformed RSP by just over 11 percentage points. This marks the fourth time that SPY has outperformed RSP by more than 10 percentage points over a six-month span.  The three prior periods of massive SPY outperformance all occurred post-COVID, and the only other times the spread got wider were briefly in August 2023 and July 2024.

Eventually this outperformance of SPY over RSP will reverse; it’s just a matter of when.  It will be interesting to see how the mega-caps trade in reaction to earnings reports, which for many will hit the tape tonight and tomorrow.  Will earnings be a “sell-the-news” catalyst for the mega-caps?  We’ll find out shortly.

Not a Bespoke client?  We’d love for you to give our equity research platform, Bespoke Premium, a try.  You can sign up for complimentary access for 14 days at this link to start receiving our daily emails today!

The story of Black Monday didn’t begin on October 28, 1929, but years earlier in the Roaring Twenties, when the US economy was seemingly unstoppable.

After the devastation of World War I, the US emerged as the world’s leading industrial power with a wave of technological innovation and cultural change.

The automobile, led by Henry Ford’s Model T, became affordable for the average American family thanks to assembly-line manufacturing.

Cars created demand for steel, rubber, glass, and oil, and massive investment in highways and suburban development. Electricity spread through cities, ushering in a new generation of appliances like refrigerators, radios, vacuum cleaners, and more that completely changed home life and consumer spending habits.

Factories became more efficient through mechanization and scientific management, boosting output while keeping costs low. Cities were flourishing as jazz music, flapper fashion, and Hollywood films carried a modern spirit.

With all of this new life, Americans, for the first time, embraced buying on credit. We know BNPL (Buy Now, Pay Later) well today, but it was also huge in the 1920s, as it allowed middle-class families to purchase all the goods they couldn’t have afforded before. Advertising boomed as companies learned to market their products, but also the lifestyles that represented happiness, modernity, and social status through consumption. Low interest rates and lax regulation made borrowing cheap and speculation rampant. Millions of Americans, factory workers, housewives, and seasoned investors alike, poured money into the stock market, often buying stocks on margin by putting down as little as 10%.

When stocks rose, returns on small initial investments were massive. But if share prices fell, the losses could be catastrophic. This worked as long as price kept climbing, and for most of the Roaring Twenties, they did. Brokers lent money freely because rising prices made loans look safe, and investors saw no reason to worry. Between 1924 and 1929, total margin debt soared to over $8.5 billion, or roughly $160 billion in today’s dollars and 6% of US GDP back then.

By early fall 1929, cracks were starting to show. Industrial production slowed, steel output dropped, and car sales weakened. The Federal Reserve warned about speculative excess, and a handful of economists began sounding alarms. Still, the Dow Jones had nearly tripled from 1926 levels, and overall confidence remained extremely complacent.

When the market began sliding in late October, panic spread quickly, and investor confidence was beginning to unravel as rumors of margin calls and large-scale sell orders spread through Wall Street. When brokers issued margin calls, demanding that investors either deposit more cash or sell shares to repay loans, most didn’t have the funds. So they sold, and sold at any price. Those forced sales pushed prices down further, triggering more margin calls and more selling in a downward spiral.

When trading opened on the morning of Thursday, October 24, panic selling began almost immediately. Volume surged to a record 12.9 million shares (nearly double a typical day), and it was so intense that the ticker tape fell hours behind, leaving traders blind to real-time prices. By late morning, the market seemed on the brink of total collapse. That’s when a group of leading bankers intervened. Led by Thomas W. Lamont of JPMorgan, they gathered at Morgan’s Wall Street headquarters and pledged hundreds of millions of dollars to stabilize the market. Richard Whitney, vice president of the New York Stock Exchange, strode onto the trading floor and loudly placed massive buy orders on behalf of the group, most notably for US Steel at $205 per share, well above its last trade. Panic subsided temporarily, and the market closed with smaller losses.

On Black Monday, October 28, 1929, the dam broke. From the opening bell, sell orders overwhelmed the exchange. The ticker tape immediately fell hours behind as clerks struggled to record the flood of transactions. Shares of iconic names like US Steel, General Electric, American Telephone & Telegraph, and Montgomery Ward, plummeted. Blue-chip stocks that had seemed invincible only weeks earlier were in free fall.  And unlike the prior Thursday, on Black Monday, there would be no cabal of bankers to try and step in to prop things up again.

By day’s end, the Dow had fallen more than 13%. With communication technology still primitive, many investors had no idea how much they had lost until the next morning when the newspapers printed closing prices.

The next day, Black Tuesday, only made matters worse as the Dow fell an additional 12%. In just two trading days, nearly a quarter of the market’s value evaporated.

By mid-November, the Dow had lost nearly half its value from its September peak.

Though the market saw brief rallies in 1930, the damage was done. The crash destroyed public faith in the financial system and triggered a cascading economic breakdown. Over the next few years, banks failed by the thousands, unemployment soared past 20%, and the US entered the Great Depression, the worst economic crisis in modern history.  From its high on September 3rd, 1929 to its low less than three years later on July 8th, 1932, the Dow fell 89.2%!   It was basically Armageddon for equity investors.

The story of Black Monday reveals how speculative bubbles, fueled by easy credit and public euphoria, could lead to catastrophic collapses once confidence cracks. The crash also exposed the lack of safeguards. There were no circuit breakers, no deposit insurance, and little regulation of securities trading. In response, the US government passed the Securities Act of 1933, the Securities Exchange Act of 1934, and created the Securities and Exchange Commission (SEC) to restore transparency and accountability. It also gave rise to a new economic philosophy, Keynesianism, which argued for active government intervention to stabilize the economy during downturns.

While painful, many investors would say that stock market crashes are a necessary part of the investing cycle. They serve as painful but powerful reminders that markets don’t move in straight lines and that risk is always present, even during the most euphoric bull markets. Without periodic corrections, investors get complacent, assuming valuations and prices will only go higher, and that mindset breeds bubbles. When a crash occurs, it resets everything, and that’s exactly what happened after 1929.

The impact of a major crash often lasts for years or even generations. Investors who lived through 1929, 1987, 2000, or 2008 carried the scars and lessons for decades. These events shape behavior and sentiment long after prices recover, often preventing excessive optimism from taking hold too easily in future cycles. In that sense, crashes help maintain balance in the market ecosystem, reminding investors that humility, diversification, and discipline are just as important in good times as they are in bad.

As crashes fade further into the rear-view mirror, the collective memory of risk begins to erode. A new generation of investors, many of whom have only known bull markets, enters the scene without having experienced the emotional and financial pain of a true downturn. They may see volatility as opportunity rather than danger, underestimate how quickly sentiment can turn, and begin to take on more risk than they realize. This gradual loss of fear can inflate valuations, fuel speculative behavior, and create an environment where even modest corrections feel shocking.

Amazingly, the S&P 500’s gains since the last big crash, the Financial Crisis, have easily eclipsed the gains seen in the Dow Jones Industrial Average during the Roaring 20s.  From its low point after shutting down for four months at the onset of World War I to its peak in September 1929, the Dow gained about 616% (price only).  Since March 9th, 2009 when the S&P bottomed after the Financial Crisis, the S&P is up 916%.

While we’re not predicting the next market crash, always remember that every long bull market eventually gives way to periods of fear and decline. The deeper and longer a rally runs, the easier it becomes for investors to forget how painful those downturns can be, and how quickly confidence can vanish. Using past crashes as a reference point isn’t about expecting history to repeat exactly, but about keeping perspective.

New to Bespoke?  We’d love for you to give our equity research platform, Bespoke Premium, a try.  You can sign up for complimentary access for 14 days at this link to start receiving our daily emails today!