Bim
Megacap stocks are making a big comeback, but that doesn’t mean the recent rally is thin, BMO Capital Markets says. In fact, more stocks are participating in the upside.
“There is no denying that ‘mega-cap tech’ stocks have been notable contributors to year-to-date price return for the market after largely struggling throughout 2022,” BMO Chief Investment Strategist Brian Belski wrote in a note. “In fact, so far in 2023, Apple (AAPL), Microsoft (MSFT), Tesla (TSLA), NVIDIA (NVDA), Amazon (AMZN), Meta (META), and Alphabet (GOOG) (GOOGL) are all part of the top 10 contributors to performance.”
“The S&P 500 Equal-Weighted index (RSP) and the S&P 500 are both up 7.7% YTD,” Belski said. “At the sector level, eight of 11 S&P 500 equal-weighted sectors have eclipsed their market-cap weighted peers YTD with Communication Services (XLC) (EWCO), Consumer Discretionary (XLY) (RCD), and Technology (XLK) (RYT) the only laggards.”
“Even then, these three equal-weighted groups do not trail by wide margins, underperforming the market-cap weighted S&P 500 sectors by 1.9, 2.8, and 1.9 percentage points, respectively.”
“To check the degree of market breadth so far this year and whether performance imbalances exist, we grouped S&P 500 (SP500) (NYSEARCA:SPY) stocks into deciles based on market cap and analyzed the average YTD performance across these deciles,” Belski said. “If performance was really as distorted as many pundits and investors have described, we would expect the largest group of stocks (decile 1 which includes the aforementioned mega-cap tech stocks) to easily be the top performers.”
“However, our analysis shows this is not the case, and performance appears to be fairly balanced across the size spectrum. 6 of 10 deciles posted average YTD gains of 7%+, while 4 deciles outperformed the 7.7% S&P 500 (IVV) (VOO) (SPXU) (UPRO) (SPXL) (SSO) gain with the strongest returns coming from deciles 9, 10, and 5, not decile 1.”
“However, mega-cap tech leadership does not automatically imply that performance breadth in the market is weak as many investors seem to be suggesting, based on our client conversations,” Belski said.
“The percentages of stocks trading above their 50-day and 200-day moving averages have trended higher in 2023 and currently stand at almost 70%, sizeable upticks from the 42% and 48% of stocks above their 50-day and 200-day moving averages at the end of 2022, respectively,” Belski added. “In fact, the current percentage of S&P 500 stocks with prices above their 200-day moving average is not far off its recent high water mark of 77% set in early February, which was the best reading since Sept 2021.”
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