The Death of Breadth

Chart The Death of Breadth

The S&P 500 posted very strong returns in 2019. However, sometimes averages can be deceiving. Diving deeper, a significant portion of the return was driven by very few stocks. Strong performance by the FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google), along with a few other mega cap companies, lifted the average higher as the majority of U.S. stocks did not perform nearly as well.

As indicated by the top panel in the chart above, returns of the S&P 500 (gold line) have significantly outperformed the equal-weighted S&P 500 returns (black line) over the past few years. This means market breadth has decreased and more return has come from only a handful of the largest companies in the index. 

The small list of disruptor companies are increasingly dominating market cap weighted stock indices. In fact, only 10 stocks account for nearly 25% of the S&P 500. 2019 was a great year for these stocks, but any stumble going forward could have a significant impact on market returns.