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The Murkiness of the Markets

The best way to describe the state of the market right now is “murky.” Murky is not a term that is typically used to describe a market environment, so what is so unique about this market that makes the term appropriate?

The reality of the market is that it is always a mixture of good and bad—some stocks perform well, while others falter. Sometimes, the resulting mixture can look fairly clear, where many stocks are trading efficiently. Other times, a bear market can make the mixture look almost black. For the markets today, some things are improving, and some things are getting worse. The resulting mixture is “murky.”

As far as the good is concerned, on the surface, the market looks to be improving. There is no denying the markets “feel” better than they did last year. We have seen a declining frequency of “outlier days” (inefficient trading days exceeding +/-1.50%), the S&P 500 is above its major moving averages, and the volatility of the S&P 500 actually falls into the realm of “rational.” Those are some good signs, especially considering the circumstances of 2022.

Now, let’s dive down deeper and have a look underneath the market’s surface.

You don’t have to dive very far to notice that the water isn’t all that clear. It was just mentioned above that the S&P 500 index is above its 200-day moving average. If we look at the largest 1,500 US stocks (S&P 1500 stocks), many of them are not experiencing that same characteristic.

To begin 2023, the market index was below its 200-day moving average. Unsurprisingly, 43% of S&P 1500 stocks were below their respective 200-day moving averages to begin the year. As the markets rose in January, the rising tide lifted most ships, and stocks generally rose as a whole. As a result, on February 1st, around 71% of the S&P 1500 stocks were above their respective 200-day moving averages. Today, the S&P 500 is at relatively the same place it was back in early February, yet only 43% of S&P 1500 stocks are above their 200-day moving average.

Source: Canterbury Investment Management. Chart created using Optuma Technical Analysis Software

So, you have a rising market that is above its 200-day moving average, coupled with a declining number of stocks above their respective 200-day moving averages. What this implies is that the market is being led higher by just a few stocks.

Here is an interesting game. How many stocks does it take to get to 50% of the S&P 500’s market capitalization? In other words, there are 506 individual stocks in the S&P 500. How many of those stocks would you need to own to get to 50% of the index? The answer: only thirty-nine. Even more of a shock, the largest seven stocks make up 25% of the market index.

Looking at just the largest ten stocks, year-to-date, on average, they are up +46% on the year (median: +39%). Last year, those same stocks were down -35% on average (median: -39%). So, the same stocks that have led the market this year pulled it downward last year.

Here is another interesting observation. If we look at the twenty best S&P 500 performers in 2023, they are up an average of +54%. Last year, those same stocks were down an average of -40%. Some of these are names you may recognize. Meta (Facebook) and Nvidia, both large components of the S&P 500 have been the two best performers in 2023. They are each up over +100%. Last year, each of these two stocks declined more than -50%. This goes to show that every dog will have its day.

The average S&P 500 stock is just up a little more than 2% year-to-date. More than one hundred of the S&P 500 stocks are down more than -10% on the year.

Bottom Line

The market is in murky waters. On the surface, the S&P 500 index is looking much better. But, as you begin to dive below the surface, you will notice that the market’s positive characteristics are being led by just a few stocks. Less than half the stocks in the S&P 500 and S&P 1500 are above their 200-day moving average.

For many stocks, particularly in the area of technology, 2022 and 2023 have been two different sides of a coin. Many of the best performers this year were some of the worst performers last year. Very few investors would have held strong 2023 performers like Nvidia and Facebook, without also holding them during their dark ages of last year.

As with any market environment, some areas have looked better than others. We continue to adapt and rotate the portfolio’s holdings as the market environment continues to shift. Our goal is to create a stable and efficient portfolio environment, regardless of whichever market environment comes next- bull or bear.


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