Nearly Half of S&P 500 Stocks Show Negative Beta Amid Market Divergence
- Approximately 45% of S&P 500 stocks exhibit a negative three-month beta.
- Only seven stocks reached new highs while 30 hit 52-week lows during a recent market rally.
- The focus on a few tech giants raises concerns over market concentration and the influence on index performance.
Nearly half of the stocks within the S&P 500 are trending against the index with a negative beta, marking an observable divergence in the market. According to Goldman Sachs, about 45% of S&P 500 stocks have a negative three-month beta, which aligns with CNBC’s findings indicating that roughly 40% have a negative three-month beta relative to the index, and 17% have a negative one-year beta based on weekly performance.
Beta, which measures a stock’s movement in relation to the market, indicates that a negative beta stock moves inversely to the S&P 500. This year, the shift towards negative beta stocks coincides with unusual market characteristics. For instance, the S&P 500 increased by 1.5% last Monday, although 30 stocks fell to 52-week lows while only seven attained new highs. This peculiar trend recalls December 1999, just before the peak of the dot-com boom, when the S&P 500 similarly experienced a significant gain despite a disproportional amount of new lows.
Widening Divide
This phenomenon highlights the growing concentration of the S&P 500, as explained by Adam Turnquist, chief technical strategist at LPL Financial. The substantial weight of mega-cap technology firms in the index implies that strong performances from a limited set of stocks can propel the index, regardless of broader market actions. “It only takes a few of those mega-cap names to work, and a lot of the smaller weighted stocks don’t need to work,” Turnquist noted.
Bradley Krom, director of investing strategy at WisdomTree, emphasized that the variation in stock performances leads to a calmer index, despite volatility at the individual stock level. Krom stated, “Beta is a function of correlation and volatility,” explaining that large shifts occurring at different times for different reasons may offset each other within the index.
In July, Alliance Bernstein reported an unprecedented level of U.S. stocks demonstrating negative beta, attributed to the dominance of AI-driven companies. Benefactors of significant capital investment in AI-related sectors, including semiconductor and hardware producers, performed well, while firms outside this trend lagged. Kurt Feuerman, chief investment officer of Select U.S. Equity Portfolios at Alliance Bernstein, commented on how a concentrated market could mislead investors regarding index performance.
Negative Energy
Energy stocks with negative beta are influenced by different variables. Turnquist noted the impact of rising oil prices and energy stocks, which have moved against the overall market trend. Earlier this month, Evercore ISI identified 115 S&P 500 stocks with negative beta—which were primarily situated in the energy, utilities, and consumer staples sectors—treating energy as a “synthetic S&P 500 put option” owing to its sensitivity to geopolitical tensions.
Turnquist believes that should market leadership diversify, the proportion of negative-beta stocks may reduce. However, he expects high variability to persist, especially as investors continue to focus on AI investment benefits. Krom agreed, predicting that current extreme market conditions will eventually normalize, recalling the patterns observed during the 1999-2000 dot-com bubble when market concentration triggered similar divergences.
Contrary to views that draw parallels between today’s market and the dot-com period, Turnquist highlighted that the current tech giants have more established business models compared to those in 2000, a sentiment echoed by Krom, who affirmed that today’s driving factors do not align historically as they did previously, attributing the observed negative beta to the level of market concentration.
News Courtesy of CNBC
