📌 S&P 500 Constituent Average Continues to Hit Record Highs, Refuting Peak Theory
As US stocks hover near all-time highs, a popular cautious view holds that market breadth is extremely poor, that the index relies entirely on a few megacap giants for support, and that it will eventually converge with the weakening majority of individual stocks in a catch-up decline. However, underlying structural data paints a starkly different picture.
First is the overall performance of constituent stocks. The average level of S&P 500 constituent stocks has set new all-time closing highs for 4 consecutive months. Although September (month 9) may become the first month since March (month 3) to fail to close higher, the preceding multi-month streak of average record highs shows that the majority of individual stocks have not fallen behind and are still maintaining an upward trend; the assertion that “a few individual stocks are falsely propping up the index” lacks factual support.
Second is the actual preference of capital. During a healthy rally, high-elasticity assets that are more sensitive to volatility typically outperform defensive assets. The ratio of high-Beta stocks to low-volatility stocks in the US market has now refreshed its highest closing level in history. This indicates that buy-side capital has not rotated into low-volatility sectors for safety, and overall risk appetite remains abundant.
Synthesizing these two indicators, behind the seemingly crowded high-level consolidation of equity indices lies both the average support of the majority of constituents and an aggressive style preference. Before momentum in the broad universe of individual stocks is exhausted or defensive styles take dominance, judging that the bull market has peaked solely based on narrowing breadth lacks sufficient evidence.
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