Average Stock Down 5% YTD, Market Driven by Just a Few

If you own a top 5 tech stocks you’re up big in 2020. If you own the rest of the index you’re doing – meh. Gains this year have been disproportionally in the large tech stocks.

The bad news is that this market is expensive on about any metric your chose and it is becoming increasingly narrow with the top 5 stocks now representing a historical high 24% of the S&P 500 Index. Indeed while S&P is now positive on the year, the average stock is still down over -5%. This typically does not bode well as much like buildings, stocks markets that have a narrow foundations are inherently unstable. This market is being supported by the Federal Reserve so perhaps it can self-correct through time and sector rotation.

Last week the S&P 500 hit a new all-time high. This is the fastest recovery in stock market history, which follows the fastest bear market decline.

The good news is that markets that are in motion, tend to stay in motion. Ninety percent of the markets that recover after a bear drop are higher 12 months later with a double digit average return.