We often hear about what the “market” is doing.  The S&P 500 is the most widely known index associated with the “market.”  In most cases, the S&P 500 as a benchmark, does a fine job tracking the health of the global economy and the 500 largest companies that make it up.  However, in certain environments, the S&P 500 may be a wolf in sheep’s clothing.  What do we mean by this? Let’s dig in a little deeper.  The S&P 500 is a market cap-weighted index, where in most years, some company’s stocks rise, some fall, and some are neutral. In upward rising markets, the majority of the stocks in the index will rise.  However, under certain circumstances, much like we have seen in 2015, the largest 10 stocks in the index (by market cap) have returned over 22% while the rest of the index has returned a paltry -2%. This spread is as wide as we have seen since the tech bubble in 2000.  The returns are heavily driven by the (T)FANG names (Tesla, Facebook, Amazon, Netflix and Alphabet a/k/a Google). However, if these names stumble, the market has little or no support behind it.  We don’t know for certain, however, that these data points are cause for concern. Uncertainty already existing from the FOMC expected rate hike, above average PE multiples relative to earnings growth, commodities crush, and other “risky” assets failing to confirm is exactly why we remain cautious and disciplined in this type of environment.

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