There’s something happening underneath the surface of the stock market that I think a lot of people are missing.
More stocks are starting to beat the S&P 500.
That might not sound like a big deal, so let me explain why it matters.
The S&P 500 is the index most people think of when they hear “the stock market.” It owns 500 of the largest companies in America.
But those 500 companies are not treated equally.
The biggest companies have much more influence over the S&P 500 than the smaller ones.
So when a few enormous stocks are doing really well, they can pull the entire index higher even if most stocks aren’t keeping up.
We saw a lot of that over the past few years.
In 2024, only 33% of stocks beat the S&P 500. Last year, that number fell to just 30%.
Think about what that means. Seven out of every 10 stocks were losing to the S&P 500.
If you owned the index, you might have been perfectly happy.
But if you were picking individual stocks, there was a pretty good chance you were watching the S&P go up faster than the stocks you owned.
This year looks different: 57% of stocks are beating the S&P 500. That’s the highest percentage in a decade:
This is one of my favorite things to see in a bull market.
The gains are spreading out.
The Bull Market Is Getting Bigger
Imagine a baseball team where two players hit all the home runs.
The team might still win a lot of games. But you’d probably feel better if the rest of the lineup started hitting, too.
That’s basically what we’re seeing in the stock market.
For the past few years, the biggest companies in America were incredibly difficult to beat.
They were so big and performing so well that simply owning the S&P 500 was a tough opponent for almost every stock picker.
That’s changing. And that’s important because the best bull markets tend to have a lot of participation.
You want to see the strength spreading beyond the biggest companies into smaller stocks, different industries and markets around the world.
That doesn’t mean everything needs to go up. It just means the rally has more stocks behind it.
And we have plenty of other evidence that this is happening.
Advance-decline lines, which simply measure how many stocks are going up vs going down, have been making new all-time highs.
The percentage of stocks on the New York Stock Exchange that are in uptrends recently reached its highest level in five months.
We’re also seeing new highs from stocks and indexes all over the world. The Bloomberg data is another piece of that same story.
The bull market isn’t just moving higher. It’s getting bigger.
And there’s another reason I think that matters.
Stock Picking Is Getting Interesting Again
There are different kinds of stock markets.
Sometimes, the smartest thing you can do is own the big index and leave it alone.
When a small group of enormous companies is crushing almost everything else, it can be incredibly difficult to beat the S&P 500.
The numbers show you just how difficult it’s been. Only 30% of stocks beat the S&P last year. Now, 57% are doing it.
That completely changes the math for investors looking for opportunities outside the biggest stocks in the market.
Suddenly, there are a lot more places to look. And we’re seeing that in our work every day.
Some of the most interesting charts aren’t necessarily the companies everybody’s talking about on TV.
We’re finding opportunities in industrials, materials and financials. We’re finding them in smaller companies. We’re finding them overseas.
That’s what happens when participation expands. The menu gets bigger.
And I think this is where people sometimes misunderstand what a strong stock market actually looks like.
They see the S&P 500 at record highs and assume stocks have already gone too far.
But the S&P 500 is only one scoreboard.
I want to know what the stocks underneath it are doing.
Right now, more than half of them are beating it.
That hasn’t happened in a decade.
So while everyone is staring at the S&P 500 wondering how much higher it can possibly go, I think there’s a more interesting question to ask.
What if the S&P 500 isn’t where the best opportunities are anymore?
Stay sharp,
JC Parets, CMT
Founder, TrendLabs