Democracy Is Back in U.S. Stocks

By: Spencer Israel

For the first time in eight years, the U.S. stock market is not an oligopoly.

From March 2013—when the S&P 500 made new all-time highs—until 2020, the group of Facebook, Amazon, Apple, Alphabet, Microsoft, and Netflix thoroughly dominated all other stocks. By last summer, the group accounted for more than a quarter of the S&P 500’s market cap.

This point has been acknowledged ad nauseam over the years. That’s what’s made the last few months so interesting for some, and unnerving for others.

At the end of the first quarter of 2021, the S&P 500 and Dow Jones Industrial Average were at all-time highs, while the Russell 2000 and Nasdaq 100 were above their 50-day moving averages.

If this were the same market of the last decade, it would stand to reason that the six FANMAG stocks would be leading the way. And yet only Alphabet (up 18%) meaningfully outperformed the S&P 500 (up 5%) in the first quarter.

If you go back even further, Alphabet is the only member of the group to outperform the S&P 500 since October 2020.

So where is all the market strength coming from? This has been one of the prevailing what-ifs of the last eight years (“If not the FANG stocks, then who?”).

The short answer is everywhere.

We noted a few months ago how small-caps had been outperforming their large-cap counterparts. But it’s worth noting now that the majority of large caps are in uptrends themselves.

According to Bespoke Investment Group, 85% of stocks in the S&P 500 are currently trading above their 50-day moving averages. In other words, market breadth is extremely strong—generally considered a bullish sign for the overall market.

Source: Bespoke Investment Group

At the same time, every single sector in the S&P 500 is up for 2021, led by energy (up 32%), financials (up 16%), and industrials (up 11%).

Alphabet meanwhile, the aforementioned best performer of the FANMAG stocks in 2021, is merely the 114th-best performing stock in the S&P 500 this year. Apple, the most valuable company in the world, is 481st.

Democracy, at least in terms of U.S. stocks, has returned.

The author is long the S&P 500 in his retirement account.

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