S&P 500 Near Record Highs, But Most Stocks Lag Significantly

The S&P 500 index is approaching record highs, yet a substantial majority of its constituent stocks are trading significantly below their peaks. This divergence, as highlighted by analysts at The Kobeissi Letter, points to a market rally heavily concentrated in a few large-cap technology companies, while the broader market grapples with considerable macroeconomic headwinds.

The stark contrast between the index’s performance and the health of its individual components emerges against a backdrop of deteriorating macroeconomic conditions. At the year’s outset, market expectations anticipated at least three Federal Reserve rate cuts. Instead, the central bank raised rates in September, and current projections suggest an additional three increases by June 2027, marking a significant 175-basis-point shift in the expected policy path. Simultaneously, Brent crude oil prices have surged to $106 per barrel, diesel prices have climbed over 80% from their January lows, and inflation remains nearly double the Federal Reserve’s target.

According to The Kobeissi Letter, this market concentration is the primary driver of the observed divergence. Their analysis reveals that 84% of S&P 500 companies are trading at least 10% below their all-time highs. Furthermore, 59% of these companies are down 20% or more from their peaks, with 41% experiencing declines exceeding 30%, and 17% falling more than 50% below their respective all-time highs. The S&P 500’s gains since the March 30 bottom have been heavily concentrated, with just 10 companies accounting for approximately 70% of the index’s rise. Nvidia alone has contributed about 13% to this rally, with other major contributors including Micron, Apple, Microsoft, AMD, and Alphabet.

This market structure, where a few technology giants are propelling the index higher, may represent an opportunity rather than solely a warning, according to the analysts. The Kobeissi Letter’s analysis suggests that if market conditions improve even modestly, the broader S&P 500 index could experience a significant boost from new buying pressure. The analysts believe that a reduction in geopolitical tensions and a pullback in oil prices could lead to lower inflation expectations, potentially prompting the Federal Reserve to adopt a less restrictive monetary policy. Such a shift could alleviate some of the downward pressure on equities and allow the market rally to broaden beyond the current mega-cap leaders.

While not a central focus of the analysis, the implications for cryptocurrencies like Bitcoin (BTC) are also considered. Persistent inflation and the declining purchasing power of the dollar could enhance the long-term appeal of scarce assets. Additionally, lower energy prices and a more dovish stance from the Federal Reserve would generally improve liquidity conditions for risk assets, including crypto. Conversely, a hawkish surprise from the Fed is likely to intensify selling pressure on risk-on assets.

Looking ahead, the S&P 500 paradox persists, with market participants closely watching the upcoming FOMC meeting in late October. The Federal Reserve is widely expected to maintain current interest rates, but any unexpected hawkish signals could lead to increased volatility in risk assets. The sustainability of the current market performance remains uncertain, contingent on the easing of macroeconomic pressures and the broadening of gains across a wider range of stocks.

Broader Context

Source materials place the market analysis in this context: The analysts at the Kobeissi Letter argued that Wall Street is in a rare “bull-bear market,” with key indices, such as the S&P 500, hovering near record highs even as most of its components trade well below their peaks.