Roller Coaster: Markets Take a Ride

Like some advances earlier this year, the market's current surge hasn't been defined by strong breadth underneath the surface—which will be key for a sustained, durable advance.

It's been a roller coaster ride for the stock market over the past few months. After nearly reaching a cycle high in late July, the S&P 500® suffered a correction of a little more than -10% by the end of October, only to rebound more than 7% since then. It was an even sharper boomerang for the Nasdaq; having a correction of more than -12% between mid-July and the end of October, only to rebound by nearly 10% since then.

Performance, above and below surface

The performance table below, which goes on my X (Twitter) feed every day, dives into more detail on the stock market's behavior both year-to-date (YTD), and since last year's October low for the S&P 500. Perhaps most notable are the "average member maximum drawdown" columns for each period. Courtesy of the bias in performance toward a few mega-capitalization (mega-cap) stocks, the significant weakness under the surface of index-level performance has been somewhat masked. In particular, notice that the average Nasdaq member maximum drawdown from YTD highs is nearly -50%.

Major Indexes and Maximum Drawdowns

Magnificent 7 (out)shining

In terms of sector-level behavior during the correction phase, deep cyclicals and interest-rate-sensitive segments of the market—like Real Estate Investment Trusts (REITs) and Consumer Discretionary—fell the most, while Energy performed the best (but still fell by -3%). Conversely, the sharp rally from the late October low has been led by the "big 3" sectors that house the "Magnificent 7" (Mag7): Technology, Communication Services, and Consumer Discretionary. Within the Technology sector are Apple, Microsoft, and NVIDIA; within the Communication Services sector are Alphabet (Google), and Meta; and within the Consumer Discretionary sector are Amazon and Tesla. Each of the Mag7 weightings with the S&P 500 are shown below.

Mag7's monster weights