Dramatic outperformance by a few megacap stocks distracts from the overall market’s uptrend
- Complaints about stock market’s ‘bad breadth’ are overblown
- Most U.S.-traded stocks are still rising
- A handful of megacap stocks have outperformed, but the rest of the market is also marching higher
- Nearly 70% of stocks in Ned Davis’s multicap basket are trading above their 200-day moving average
- A few stocks often contribute an outsize share of gains for cap-weighted benchmarks
- Top 10 stocks in the S&P 500 account for nearly 34% of the index’s market capitalization
- Investors should be more concerned about growing complacency and excessive optimism
- Megacaps leading is okay if they are taking other stocks with them
- Markets still managed to climb during the 12 months after concentration peaked
Market gurus love to complain about the fact that the performance of indexes like the S&P 500 is increasingly being driven by a small cadre of megacap stocks. But this carping about the market’s ‘bad breadth’ is missing an important point: While a handful of extremely valuable technology stocks have dramatically outperformed over the past year, most U.S.-traded issues are still rising. According to Ed Clissold, chief U.S. strategist at Ned Davis Research, the difference between relative and absolute performance is key. If megacap tech stocks were the only stocks rallying and the rest were declining, then the concern would be legitimate. However, that is not the case currently. Outside of the elite basket of megacap stocks, most other stocks remain firmly in a long-term uptrend, with nearly 70% of stocks in Ned Davis’s multicap basket trading above their 200-day moving average. While it is common for a few stocks to account for most of the gains in cap-weighted benchmarks, investors should be more concerned about growing complacency and excessive optimism. The longer this exuberance persists, the greater the risk of a correction once sentiment finally retreats. Ultimately, it is okay for megacaps to lead if they are taking other stocks with them. Markets have historically managed to climb during the 12 months after concentration peaked.
Factuality Level: 7
Factuality Justification: The article provides a detailed analysis of the performance of megacap stocks in the market and how they impact indexes like the S&P 500. It includes quotes from experts and data to support the arguments presented. The information is relevant and fact-based, without significant digressions or misleading content.
Criteria1: 2
Criteria2: 3
Criteria3: 7
Criteria4: 6
Criteria5: 8
Criteria6: 7
Criteria7: 5
Criteria8: 6
Criteria9: 7
Noise Level: 4
Noise Justification: The article provides some valuable insights into the market dynamics, particularly regarding the performance of megacap stocks and market concentration. It offers a balanced view on the topic, highlighting both the positives and potential risks. However, there is some repetitive information and unnecessary details that could be considered noise.
Financial Relevance: Yes
Financial Markets Impacted: The article discusses the performance of indexes like the S&P 500 and the impact of megacap stocks on the market.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Rating Justification: The article does not mention any extreme events or their impact.
Public Companies: Nvidia Corp. (NVDA), Apple Inc. (AAPL), Tesla Inc. (TSLA), Alphabet Inc. (GOOGL), Microsoft Corp. (MSFT), Netflix Inc. (NFLX), Amazon.com Inc. (AMZN), Meta Platforms Inc. (META), Goldman Sachs Group (GS)
Key People: Ed Clissold (Chief U.S. Strategist at Ned Davis Research)
Reported publicly:
www.marketwatch.com 
