Principal Financial says Wall Street has a ‘bad breadth problem’
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Principal Financial Group argued Monday that Wall Street has a "bad breadth problem," saying that the rally the S&P 500 (SP500) seen in 2023 has been driven by just a select few companies across a narrow set of sectors. The firm also noted that if these stocks fail to deliver on heightened earnings expectations, the broader market may be primed for a pullback.
âUntil mid-June, the five best-performing stocks in the S&P 500 had contributed 60% to S&P 500 returns this year compared to an average positive contribution of 35% over the past decade,â Principal Financial Group highlighted.
The investment firm added: âAdditionally, the market-weighted S&P 500 is outperforming the equal-weighted S&P 500 by 11% - the largest year-to-date outperformance since records began in 1990.â
Much of the topside moves of late have been driven by a handful of mega cap names that are riding the artificial intelligence hysteria, the investment management company outlined.
Some names include the likes of NVIDIA Corporation (NVDA), Apple (AAPL), and Microsoft (MSFT) which together represent roughly 17% of the S&P 500 index and have returned in 2023 +198%, +50.2%, and +39.1% respectively.
In turn, this has also supported moves in the broader tracking exchange traded funds that mirror the S&P 500. Those names include the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), Vanguard S&P 500 ETF (VOO), and the iShares Core S&P 500 ETF (IVV).
While SPY, VOO, and IVV all move up on the year, the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP) holds up in the green also, just on a much lower basis as the ETF cuts down the noise of the select few names that have driven up the prices in the broader S&P 500 index.
Year-to-date price action: SPY +13.7%, VOO +13.7%, IVV +13.7%, RSP +2.6%.
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