Capitalization vs. Equal-Weighted S&P 500 Indices
The largest capitalization stocks are driving the bulk of the increase in the S&P 500.
One of our readers, AJ, wrote to tell us about differences he noted between the S&P 500 (SPY) and the S&P 500 Equal Weight indices (RSP). You can see the differences below in the visual. This spread indicates larger companies are primarily driving market gains.
Check out the 10 biggest components of the S&P 500. The reason the capitalization-weighted index (SPY) outperformed the equal-weighted index (RSP) is that the top 10 stocks comprise 36% of the index. Notice how well these stocks are doing compared to the others. In the RSP, these same stocks would make up 10/500 = 2% of the total index.
The takeaway is this: The largest capitalization stocks are driving the bulk of the increase in the S&P 500.
Sectors in 2024
Analyzing 2024 sector performance reveals several key patterns:
Financials (XLF) and consumer discretionary (XLY) lead all sectors with identical 28.1% year-to-date (YTD)x returns, suggesting broad market confidence in both consumer spending and financial services.
Gold (GLD) has outperformed silver (SLV) by 5.2 percentage points (27.0% vs. 21.8%), potentially reflecting its stronger appeal as a store of value in the current market environment.
A notable market dynamic is visible in the 13.4% performance gap between the cap-weighted S&P 500 (SPY at 24.7%) and its equal-weighted counterpart (RSP at 11.3%).
Healthcare (XLV) and materials (XLB) have lagged significantly, posting losses of 0.8% and 1.3% respectively. Similarly, real estate (XLRE) and energy (XLE) have shown minimal gains of 0.5% and 0.9%, effectively trading flat for the year.
Four Chances to Guess the Market—Total Prize Pool of $5,000
This competition awards $1,000 for accurate predictions of Q1, Q2, and Q3 closes, and a $2,000 prize for Q4. This is based on the closing values of the S&P 500 index (SPX).
Submit entries at tastylive.com/guess by Friday, Jan. 3, 2025! Good luck!
Gold and silver
Below we have a comparison of the two precious metals. While gold (GLD) and silver (SLV) are highly correlated, this relationship has broken down during the past month.
The semiconductor stocks have been mostly stuck in the mud for the second half of the year, except for Nvidia (NVDA) and Broadcom (AVGO). If you think the participation might broaden, Advanced Micro Devices (AMD) is the fifth largest holding in SMH (Semiconductor ETF) and is sitting near lows. Selling the 105 put in February for around $2.41 is a roughly 20 delta with a potential at ~10%-20% ROC.
SPX ($5912) broken wing butterfly (JAN31) $3.00 credit
No Santa rally this year! SPX has pulled back into year end, with a slight uptick in volatility. If you want to play into the upside, with a little bit of a downside buffer, a broken wing butterfly would fit the mold. Buying the $5750, selling the $5725 (2x) and buying the $5675 wing gives a breakeven down at $5700 with no risk to the upside.
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Michael Rechenthin, Ph.D., (aka “Dr. Data”), managing director of research and development, has 25 years of trading and markets experience. He’s best known for his weekly Cherry Picks newsletter. On Thursdays, he appears on Trades from the Research Team LIVE.
Nick Battista, tastylive director of market intelligence, has a decade of trading experience. He appears Monday-Friday on Options Trading Concepts Live. On Wednesdays, he co-hosts Johnny Trades. @tradernickybat
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