A record share of S&P 500 stocks underperformed the index in 2023 as 'weirdest bull market in decades' marches on

By Joseph Adinolfi

The S&P 500 index is closing in on a fresh record high as 2023 draws to a close. Unfortunately for stock pickers, many of the index's constituents remain well below their highs from January 2022.

This has led to a striking divide between the U.S. market's "haves" and "have nots," a dynamic that has resulted in what eToro's Callie Cox recently described as "the weirdest-looking bull [market] in decades."

Both Cox and Apollo's Torsten Slok have been closely tracking the share of S&P 500 SPX members that have been underperforming the index. And on Wednesday, Slok pointed out in emailed commentary that at 72%, the share of S&P 500 underperformers is on track for a record in 2023.

To be sure, this divergence is nothing new. So-called "bad breadth" in the U.S. stock market has been a hot topic on Wall Street practically all year.

Many analysts have expressed concern that the U.S. market has become too top-heavy as a handful of megacap stocks, nicknamed "the Magnificent Seven" by CNBC's Jim Cramer and a coterie of analysts, drove virtually all of the index's gains, spurred by the artificial-intelligence boom.

See: One of the biggest problems plaguing the U.S. stock market is getting worse as selloff continues

Members of this select group include Apple Inc. (AAPL), Nvidia Corp. (NVDA), Tesla Inc. (TSLA), Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), Alphabet Inc. and Meta Platforms Inc.

Due to this lopsided performance, the S&P 500 has beaten its equal-weight sibling by more than 12 percentage points so far this year.

As of Wednesday morning in New York, the S&P 500 had risen 24.4% in 2023 to trade at 4,777, according to FactSet data, just shy of its record close from Jan. 3, 2022.

Meanwhile, the Invesco S&P 500 Equal Weight ETF RSP, which tracks the equal-weight index, was up just 11.8% at $158.07 a share.

For what its worth, RSP is on the verge of a "golden cross" as its 50-day moving average nears its 200-day moving average, as many of the market's laggards have narrowed the performance gap with traders pricing in multiple Federal Reserve interest-rate cuts in 2024.

The Nasdaq-100 NDX has fared even better, having risen more than 54% in 2023, according to FactSet data.

-Joseph Adinolfi

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12-30-23 0556ET

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