On Monday, we put up a brief post about breadth and depth in the S&P 500. Roughly, even though the S&P 500 itself has shown a lot of strength to at least stay neutral or range bound for quite some time, it's outperforming companies which are keeping it there. The majority of the index components are showing notable weakness.
Weighing the index neutrally, as we did, revealed a different story - weakness in a majority of issues that was covered up (of course) in the market cap weighted index. Of course, a normal index investor wouldn't mind - unless you see the weakness of the parts as something that can eventually bring down the whole.
The S&P 500 vs. the Dow Jones
Let's look at this a different way - the S&P 500 versus the Dow Jones Industrial Average. We made a comment about the Dow Jones being a price weighted index, but in reality it doesn't make a huge difference over the long term (see our DJIA calculator vs. our S&P 500 calculator). What the Dow Jones does do, however, is show us the performance of 30 of the top publicly traded companies in the United States - roughly divided into different industries.
I've adjusted the two indices so they match at the beginning - so you are looking at the Dow "as if" it was the S&P 500.
Until late 2013? Outperformance. Since then? Underperformance.
So, maybe 'superstar' companies isn't the best way to describe the continued strength of the S&P 500 - instead, it's superstar companies in superstar industries.
Anything else interesting you see in the data?
