Pause, Reversal, or the Beginning of a New Trend?

The degree to which stock market returns since the 2022 market lows have been dominated by a narrow group of large cap tech stocks receives a lot of attention in the financial media. This coverage is justified, because the degree to which index returns have been dominated by these companies is overwhelming. To put it simply, if you did not own these stocks at a percentage equaling (or exceeding) their index weights, you have been left in the dust. To make this point, consider the difference in returns between the S&P 500 Index and the S&P 500 Equal Weight Index below. These two indexes contain the exact some 500 stocks: one holds them at their relative size weighting, while the other holds them in equal weights. In the last three years, the cap weighted index has returned about 30% while the equal weighted index has returned about one-third as much. Also note, small company stocks, as measured by the Russell 2000 Index, are behind the S&P 500 index by over 20%. But, things are changing.

Immediately below are the same three indexes as shown above but over only the past month. One can see the small caps have been surging, up over 10% in the past month, and the equal weighted index is up over 3%, while the cap weighted index is flat. This is certainly a welcome change for those of us who have been patiently waiting for our stocks to “join the party.” And it is not just small caps.

For clients of WealthPlan, you know one of the strategies we manage is a so called “dividend aristocrats” portfolio. These stocks have also been lagging the S&P because these are largely not large cap tech stocks benefiting from the AI-related market hype. Below we add the S&P 500 (large cap) Dividend Aristocrats Index and the S&P 400 (Mid cap) Dividend Aristocrats Index to the chart above. One can see these dividend stocks have also exceeded the S&P 500 Index in the past month.

The last month is certainly a welcome turn of events for those strategies that have been left behind by the S&P 500 Index. Whether this represents a pause of the former pattern, a reversal, or the beginning of a new trend will depend upon the earnings of the companies in each index, the broader economic environment, Fed interest rate policy, and how important valuation levels become in setting stock prices going forward. Our experience tells us that focusing on stocks of companies with strong fundamentals, a solid dividend history, and reasonable valuations is a good long term strategy for prudently building wealth in the stock market. Here’s hoping for continued strength in the stocks we choose to place in our investment portfolios!

The S&P 500 Index, or Standard & Poor's 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The S&P 500 index is regarded as one of the best gauges of prominent American equities' performance, and by extension, that of the stock market overall.

The Russell 2000 tracks the roughly 2000 securities that are considered to be US small cap companies. The Russell 2000 serves as an important benchmark when investors want to track their small cap performances versus other sized companies. The Russell 2000 tends to have a larger standard deviation in comparison to the S&P 500.

The S&P 500 Dividend Aristocrats is a stock market index composed of the companies in the S&P 500 index that have increased their dividends in each of the past 25 consecutive years. It was launched in May 2005.

The S&P MidCap 400 Dividend Aristocrats Index is composed of companies in the S&P MidCap 400 that have increased dividends for fifteen consecutive years.

Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment.

Advisory services offered through WealthPlan Group, a DBA for WealthPlan Investment Management, a subsidiary Registered Investment Advisor of WealthPlan Group, LLC.? WealthPlan Group, LLC is not a registered investment advisor, but is the holding company for WealthPlan Partners LLC and WealthPlan Investment Management, LLC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which Investment(s) may be appropriate for you, consult your financial advisor prior to investing. Information is based on sources believed to be reliable, however, their accuracy or completeness cannot be guaranteed.

No investment strategy can assure success or completely protect against loss, given the volatility of all securities markets. Statements of forecast and trends are for informational purposes and are not guaranteed to occur in the future. All performance referenced is historical and is no guarantee of future results. Securities investing involves risk, including loss of principal. An investor cannot invest directly in an index.

The information in this communication applies solely to the intended audience and in no way amends, revokes, or otherwise alters the existing agreements and relationships between WPIM and its clients.? This communication is not a binding offer, expressed or implied.? WPIM undertakes no obligation to update or revise the information herein or in any referenced third-party resource due to new information, future events or circumstances, or otherwise.