Market Insights

A Narrow Stock Market So Far

April 21, 20231 Min Read
April 21, 2023
1 Min Read
A Narrow Stock Market

Michael E. Schroer, CFA



Stocks are off to a positive start thus far in 2023, but the leadership of the market advance has been notably narrow.

The Russell 1000® Index posted a price gain of 7.0% for the first quarter, yet the ten largest stocks in the Index (equal to 1% of total stocks in the Index) accounted for over 70% of the overall price gain, due in part to their 22.8% weighting in the market cap weighted Index. Of course, these same ten stocks dropped an average of -3.4% during last year’s fourth quarter, a quarter where the overall Index gained 7.2%.

Narrow Stock Market Leadership
Ten Largest Stocks in the Russell 1000® Index as of 3/31/2023
Source: FactSet data as of 3/31/2023

1 The contribution calculation takes the daily beginning weights x the daily returns which are then linked for the specific period.

The impact of mega cap stocks on the performance of the S&P 500® Index in the first quarter was just as significant. Since 1990, Standard & Poor’s has calculated equal weighted performance figures for the S&P 500 alongside its more widely known capitalization weighted returns. In the first quarter of 2023, the equal weighted S&P 500 posted a total return of 2.9%, 4.6% below that of the cap weighted S&P 500. This ranked in the lowest 4% in terms of relative performance by the equal-weighted S&P Index over a three-month period since 1990. Nevertheless, the equal weighted Index has outperformed the cap weighted version by an average of 1.5% overall rolling 12-month periods since 1990 and tends to perform even more favorably following periods of negative relative performance.

S&P 500 Equal Weighted vs. Cap Weighted Returns
(1/1/1990 through 3/31/2023)
Source: S&P Dow Jones.

1 The three-month difference through 3/31/2023 was -4.6%.

Illustrating this point, the table above summarizes the equal weighted versus the cap weighted returns of the S&P 500. While the equal weighted Index, on average, outperformed over all rolling 12-month periods, after a three-month period of negative relative returns it has tended to perform better. In fact, after a three-month period of underperformance of 4% or more (as we saw in the first quarter of this year), the equal weighted Index outperformed by 7.1% on average over the following 12 months.

We continue to believe that investors who are willing to hold diversified portfolios will likely be rewarded with more favorable returns over the long term than those with portfolios that are heavily overweighted with mega cap stocks.

Michael E. Schroer, CFA



Stocks are off to a positive start thus far in 2023, but the leadership of the market advance has been notably narrow.


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Past performance is not a guarantee of future results.

This Market Update reflects the thoughts of Renaissance as of March 31, 2023. This information has been provided by Renaissance Investment Management. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision, nor should it be considered a recommendation. The views and opinions expressed are those of the Chief Investment Officer at the time of publication and are subject to change. There is no guarantee that these views will come to pass. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.

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(Indices are unmanaged and are not available for direct investment.)
S&P 500 Index—The S&P 500 Stock Index is a market capitalization weighted index and consists of 500 stocks chosen for market size, liquidity and industry group representation.

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