The Bullish Middle

Halftime is nearly here for 2024, and the S&P 500 has already trounced analysts’ consensus expectations for its full-year return. This is one reason headlines are pounding the this party won’t last drum. Another reason: the perpetual claim that one or two big companies are responsible for the whole shebang, hiding a weak market. Yet a quick look at market breadth shows this isn’t the case.

Through yesterday’s close, the S&P 500’s year-to-date return clocked in at 15.5%.^[i] This is ahead of both the median professional forecast entering the year (1.4%) and the average election-year return (11.4%).^[ii] Given election years are usually back-end-loaded as markets get a boost from falling uncertainty and simply having a winner, we see a high likelihood of more positivity in store. And breadth shouldn’t be an impediment.

Of the 500 S&P 500 constituents that have been in the index all year, 132 are beating the index’s year-to-date return.^[iii] This is pretty close to the situation a year ago, when 143 were beating the index.^[iv] There turned out to be plenty more gas left in the tank at that point, and we see little suggesting now would be so very different.

If we slice the data another way, breadth has actually widened this year. Exhibit 1 compares the S&P 500’s stats for this year and last at the same mile marker. More companies have positive returns now than at the same point last year. There are also more with double-digit returns.

Exhibit 1: Bull Market Participation at a Glance

Source: FactSet, as of 6/26/2024. S&P 500 and constituent companies’ total returns, 12/31/2022 – 6/25/2023 and 12/31/2023 – 6/25/2024.

None of this is predictive, of course. But it lays bare the fallacy of a one-trick-pony market. So does this: The combined weight of all negative S&P 500 constituents year to date is 18.3%, which exceeds the combined weight of the two giant companies that are supposedly responsible for the index’s returns.^[v] In the S&P 500—just as in a typical diversified personal portfolio—the outliers mostly cancel one another out, leaving the broad middle to do the heavy lifting.  

Big positions and big movers get all the attention. But it is the daily grind in the vast swath of the market’s middle that chiefly drives returns over time. That swath is clawing out some nice returns this year. Volatility and a correction (sharp, sentiment-fueled move of -10% to -20%) are always possible, of course. But with corporate fundamentals looking bright and election tailwinds looming, they should have plenty of room to run.