Major U.S. stock indices remain relatively stable overall, but signs of weakness within the market are intensifying. The S&P 500 Equal Weight Index is expected to fall for a seventh consecutive week this week, and if the decline continues through Friday, it will mark only the third time in the index’s history that it has recorded seven straight weekly declines. The previous two instances occurred during the dot-com bubble burst in 2002 and during the U.S. stock market bear-market selloff in 2022. Compared with the traditional market-capitalization-weighted index dominated by large technology stocks, the equal-weight index gives each constituent stock the same weight, so it better reflects the performance of U.S. stocks as a whole.
Divergence within the market has been particularly pronounced in September. So far this month, only two of the S&P 500’s 11 sectors have posted gains, namely communication services and information technology, and both sectors contain a large number of technology giants. Financial stocks have become the worst-performing sector in September, falling nearly 7% month to date. At the same time, the KBW Bank Index has continued to retreat since hitting a high in mid-August and has now entered a technical correction range, meaning it has fallen at least 10% from its recent high. This means that although the major stock indices have not shown obvious declines, upward momentum is increasingly concentrated in a small number of large technology companies, while a large number of individual stocks and sectors are in fact under clear downward pressure.
Compared with the sharp fluctuations within the market, major U.S. stock indices still appear relatively calm on the surface. The S&P 500 is currently on track to end the quarter at roughly the same level as at the beginning of the third quarter. The Nasdaq 100 previously fell into correction territory but subsequently recovered much of its losses, showing a degree of resilience even amid rising U.S. Treasury yields and growing market concerns about the risks of artificial intelligence investment. An important reason for this phenomenon is the ongoing rotation among sectors and individual stocks within the market. While some stocks rise sharply, others fall markedly, and these two forces offset each other at the index level, thereby keeping the major stock indices broadly stable overall.
It is worth noting that the gap between the performance of the overall U.S. stock market index and that of individual stocks has now reached an extreme level. Data show that the gap between the recent low volatility of the major indices and the sharp volatility of individual stocks and sectors has widened to the highest level since the worst period of the dot-com bubble burst in 2000. The continued weakening of the S&P 500 Equal Weight Index further highlights this trend. Because the traditional S&P 500 index allocates weights according to company market capitalization, gains in a small number of mega-cap technology stocks can provide relatively strong support for the index; the equal-weight index reduces the influence of technology giants and better reflects the overall performance of ordinary constituent stocks.
Therefore, although major indices such as the S&P 500 and Nasdaq 100 have not yet released obvious signals of broad-based selling, market breadth continues to deteriorate. If the S&P 500 Equal Weight Index ultimately records a seventh consecutive weekly decline this week, it will be the third such occurrence in history after 2002 and 2022, further highlighting the current notable divergence in U.S. stocks characterized by “stable indices and internal pressure.”
