The markets are never fully democratic or egalitarian in their allocation of rewards and burdens. But the stock market is again in a phase where inequality issues among stocks, sectors and investment styles have become stark.
As in the broader society, this divide between haves and have-nots has triggered a debate about what it means for the long-term health of the market.
Even before the indexes staggered Friday, with the S&P 500 dropping 1.8 percent from a five-month high, the performance across the expanse of the market had been uneven, with select groups of stocks leading and many others wallowing.
The tape has shown a strong preference for very big companies over smaller ones, organic-growth vehicles over economically cyclical plays and groups offering a reliable stream of cash flow and income over all others.
Starting with the broad numbers, only a minority of stocks are in an uptrend, trading above their 200-day average, even as the broad indexes themselves have spent most of the past two months above theirs.
Jonathan Krinsky of Bay Crest Partners shows fewer than 40 percent of the inclusive Russell 3000 index are above their 200-day mark.
Source: Bay Crest Partners
This largely reflects the way small-cap stocks have rolled over in recent weeks, with new money congregating in the familiar giants of the Nasdaq. A one-month comparison of the Invesco Nasdaq 100 ETF (QQQ) and the small-cap Russell 2000 illustrates this split.
Source: Yahoo Finance
After leading the ferocious market bounce off the late-December bottom, value stocks and more cyclical names have given way to big growth names with less reliance on a pickup in economic activity.
Another way to view this: Stocks that act more like bonds are what investors prefer at the moment. Certainly this is behind the strong outperformance of the real estate and utilities sectors, which both hit fresh highs last week. Every S&P utility stock is above its 50-day average, as are 88 percent of real estate names and 78 percent of the consumer-staples sector.
But this is not just about dividend income holding appeal in a yield--scarce world. Big, dominant tech platforms and global branded-goods companies also get credit in the market's unspoken logic as bond surrogates. Their cash flows are seen as durable and are expected to continue for many years to come.
This is why the FANG club and other popularly anointed growth stocks in its orbit do well when the market is clinging to "quality" and "defensive growth." This also means the stocks that appear more expensive have been more in demand — making them more expensive. (Utilities, real estate, tech and staples — the strongest groups lately — are also the only ones with a premium valuation to the S&P 500.)
That's about one-eighth of the index, comprised of five stocks. The blended price/earnings multiple on 2019 forecast profits of FANG-plus-Microsoft is 29.5. For the entire S&P 500, the P/E is 16.6. For the 495 S&P 500 names aside from FANG-plus-Microsoft, the multiple is 14.8.