The S&P 500 Index ($SPX) is top-heavy, and has been for a while. That’s been well-publicized by many analysts, including me. But that’s not the issue I’m focused on right now. Instead, it is what’s happening right now, as we near the end of October, the rest of earnings season, and the U.S. midterm elections.
What’s that? The generals at the top are fading fast. And the way the S&P 500 is currently aligned, there might not be many reinforcements to stop SPY, IVV, and VOO, the giant S&P 500 ETFs, from continuing to roll over.
More Yield, Less Trap: Sign up free to get Barchart’s daily Dividend Investor newsletter straight to your inbox.
Here are the current holdings in the iShares Top 20 U.S. Stocks ETF (TOPT), which is one of my favorite ETFs to use as a research and monitoring tool. It owns the 20 largest stocks in the S&P 500 Index and resets at each of the ETF’s rebalancing dates.
Currently, the top 20 stocks occupy about 50% of the S&P 500. The top 10 alone account for nearly 38%. And that includes both share classes of Alphabet (GOOG) (GOOGL), which means only nine companies make up 38%. Add in the next 10, and you’re right around half the total index.
www.barchart.com So it follows that if the big hyperscaler AI stocks, the Magnificent Seven types that dominate the top of the S&P 500, were to fall down, the index MUST have some heroes lying quietly underneath.
That’s why this table of stock performance from TOPT’s current portfolio, when viewed as a Barchart watchlist, and displaying this multi-timeframe performance grid, is so important. It shows me where those reinforcements might be coming from.
And here’s the thing: I don’t see many. At least not enough to prevent the index from pulling back more. I sorted this by the 20-day return column. That covers late September through last Friday.
Intel (INTC), Micron (MU), Advanced Micro Devices (AMD), and Broadcom (AVGO) are all down double digits, percentage wise, or close to it. Furthermore, nine of the 20 stocks are down over the past 100 days, so nearly five months in the rear-view mirror.
Now, it certainly helps that some of the non-tech names are picking up slack. A sudden resurgence in the credit card twins Visa (V) and Mastercard (MA), as well as energy stocks like ExxonMobil (XOM) and consumer favorites like Walmart (WMT) has kept the chart of SPY and also TOPT (shown here) from a similar decline to that seen in the Invesco QQQ ETF (QQQ), which is more heavily weighted in those giant AI stocks which now find themselves in the eye of the storm.
www.barchart.com If we’re looking for a savior or two, I’ll offer up this pair. Perhaps they are big enough and strong enough to allow the S&P 500 Index to muddle through and rally after the election and through the year-end.
www.barchart.com Apple (AAPL) is benefitting from the market considering it to be somewhat outside of the AI trade. It looks at least like an outperformer. A consolation prize, perhaps. But it does still have a nice uptrend in place.
www.barchart.com The other is Tesla (TSLA). It helps that bulls are giddy about a potential link up with SpaceX (SPCX), to form one Elon Musk-built public company.
That’s been enough to keep the stock treading water. Even if it hasn’t made a dime for shareholders in several years.
The best way to defend, if that’s your aim, is to use inverse ETFs. The ProShares Short S&P 500 ETF (SH) shorts the S&P 500, and that’s one place to start. But be careful with the math of investment loss, if you make your own investment decisions.
It takes a true understanding before considering owning an investment that trades as an ETF, tracks the stock market index, but does so in reverse. Just because some TSLA cars can do that by themselves, your investment decisions are self-driven, but not automated.
Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, Barchart columnist, and straight-talker. Download his new free e-book on hedged bond investing for retirement at ETFYourself.com. His research and model portfolios are at ROAR.PiTrade.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
More news from Barchart
The 2 S&P 500 Stocks That Could Possibly Hold Up the Whole Index if the AI Trade Collapses Here’s the 1 Indicator I’m Watching to See if the S&P 500 Is About to Enter a Correction… or Come Crashing Down Traders Are Heading to the Polls Early. Incumbent Mega-Cap Tech Stocks Are Still Winning the Race. Stop Sleeping on Bonds: 3 ETFs to Buy So You Can Profit When Rates Rise