S&P 500 Just 2% from Record High Despite 84% Stocks in Correction
The S&P 500 index remains close to its peak, even as a significant majority of its stocks face corrections amid global turmoil.
84% of S&P 500 stocks are down at least 10% from their peaks.
Nvidia and nine tech firms contribute 70% of the index's total returns.
The Federal Reserve's recent rate hike reflects ongoing economic challenges.
In a striking juxtaposition, the S&P 500 index is currently trading just 2% below its record high, despite a backdrop of global crises, including energy supply disruptions and rising inflation. As of the latest trading session, the index settled at approximately 7,659, only slightly lower than its peak of 7,844.52 reached on October 6. This performance comes even as nearly 84% of the stocks within the index have experienced declines of at least 10% from their peak values.
The current market scenario is complex, with the S&P 500 seemingly on the verge of entering its fifth consecutive bull year. However, a deeper analysis reveals that the majority of stocks are facing significant corrections, particularly in the Real Estate sector. According to the Kobeissi Letter, 59% of S&P 500 stocks have fallen by at least 20%, while 41% are down more than 30%, and 17% have plummeted over 50% from their highs.
Driving the index's performance are a handful of tech giants, particularly Nvidia, which, along with nine other technology firms, accounts for a staggering 70% of the total returns. Nvidia alone contributes 13% of the S&P 500's overall returns, highlighting the disparity between the performance of these leading stocks and the broader market. The other notable contributors include Apple, Microsoft, and Amazon, while the remaining 490 stocks have collectively contributed only 30% to the index's returns.
The economic landscape is further complicated by the ongoing Iran war, which has triggered energy supply issues and prompted the Federal Reserve to raise interest rates. In September, the Fed increased its benchmark interest rate by 25 basis points, marking its first hike since July 2023. This decision reflects the central bank's response to persistent inflation and rising consumer prices. The current growth trajectory of the S&P 500 mirrors levels seen during the second quarter of 2021, a period characterized by significant government stimulus amid economic recovery.
Looking ahead, analysts suggest that the S&P 500 could have surpassed 9,000 in the absence of the Iran conflict and its associated economic headwinds. Despite the current market challenges, many tech stocks are trading at deep discounts, with Nvidia's price-to-earnings ratio illustrating this trend. Although Nvidia's stock has surged over 21% in the past year, its P/E ratio has decreased by 46%, indicating potential for further growth as the market navigates through these turbulent times.
