From the lows in March right up to now, one of the number one preoccupations of investors has been the widening gap between the market-cap-weighted S&P 500 and the equal-weighted index. When the market-cap-weighted index outperforms the equal-weight index, it indicates that stocks with the largest market caps are outperforming their relatively smaller peers and vice versa when the equal-weight index outperforms. As shown in the top chart below, through this afternoon, the S&P 500 has rallied more than 12.74% over the last year compared to a gain of just 0.74% for the equal-weight index for a gap of 12 percentage points.
The second chart below shows the performance spread between the S&P 500 and the equal-weighted index over the last 12 months. While the spread is wide now, just over a week ago it was even wider at 15 percentage points. The sell-off of the last few days has certainly narrowed the gap a bit, but there is still a lot of space between the two indices where they sit now. If the recovery from the pandemic recession continues, we would expect to see some broadening out of performance across market caps, but if the recovery derails or hits a roadblock, then the largest of the largest stocks could see their lead start to widen again. Click here to view Bespoke’s premium membership options for the best market analysis available.