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One of the bears’ biggest arguments is falling apart this year

Those who have doubted the power and resilience of the rally in stocks frequently complained that there was something phony about the market. Just a few companies, they pointed out, have contributed the majority of market gains. Once these names lost their momentum and the smoke cleared, the argument went, stocks as a whole would turn lower.

Famous market bear Marc Faber, for instance, proclaimed in the summer that stocks are in a "stealth bear market" and eventually, "the weakness in the overall market ... will strike."

To give credit where credit is due, stocks have indeed lost their mojo since then — and despite a substantial bounce from the mid-February lows, the S&P 500 is slightly lower than it was when those comments were made.

But it is no longer true that a few choice companies are holding up the market. To the contrary, the market right now resembles a baseball team hanging onto a few aging stars: The rest of the starters may be shining, but the big guns depress performance.

Of course, since it is a market-cap-weighted index, the S&P 500 is much more influenced by the performance of some companies than others. The greater the value of a company's free-floating shares, the more its performance will impact the overall S&P 500.

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An interesting comparison, then, is between the regular S&P 500 and an equal-weighted version, which essentially measures the average performance of all the stocks on a given day. This equal-weight index has underperformed the S&P 500 in recent years, but in 2016 is up 2.9 percent, almost tripling the performance of the S&P. This is a clear indication that the average stock is doing better than the market.

Grizzly bear
Darrell Gulin | Getty Images

Other ways of looking at market breadth generate similar readings.

More than half of the S&P 500 components are currently higher than their average price over the past year, even as the market is lower.

And when looking at perhaps the most common measure of market breadth — the number of stocks hitting 52-week highs as compared to the number hitting 52-week lows — one finds that over the past five trading sessions (inclusive of Thursday) 68 stocks have hit their highest levels in a year, while only 16 have found their lowest.

Unfortunately for those exposed to a broad-market tracker such as the SPDR S&P 500 ETF (SPY) one of the unlucky names in that latter category is Apple. The biggest stock in the world, Apple alone has chopped 0.83 point off of the SPY this year, according to FactSet data. By comparison, the biggest adder to the SPY has been Exxon Mobil, whose rise has granted 0.64 point to the ETF.

In perfect contrast to past years, then, a few large stocks are weighing down a market that looks reasonably strong under the surface. That may be little consolation to those who have seen their money go almost nowhere in 2016, but some may use it as a case for expecting a better environment from here on out.

"Typically when the equal-weighted index is outperforming the market-cap-based index, it means that there is broad-based market strength ... which is typically a good thing," Strategic Wealth Partners President Mark Tepper said Tuesday on CNBC's "Trading Nation."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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