RBC Capital Markets said on Monday that the recent downturn of the S&P 500 is based on patterns from previous years. However, net bullishness on the AAII survey has fallen to 2.9% as of 1-9-25, and investor sentiment has also fallen. RBC strategists say sentiment may deteriorate further, hitting one standard deviation below the long-term average of net bullishness seen in the fall of 2023. There is short-term pain for stocks, but the setup is much better in the long term, said Lori Calvasina of a team that reported.
The University of Michigan’s consumer sentiment watch, which bottomed out in 2022, has been inching back, but the reading for January, last week’s preliminary, came in slightly below expectations. That explains some of the stock market’s weakness, strategists say, since the S&P 500 and Russell 2000 have been as strongly correlated with the Michigan consumer sentiment index at the start of COVID as later on. In addition, the S&P 500 price action moved against the trends forecasted by the sentiment index, suggesting that the market may have been setting up for a short-term reduction.
Early in 2025, questions have been raised about the concentration of S&P 500 market capitalization in the largest names. RBC took a look at the top five and top ten companies by market cap, analyzing the evolution of their share in the S&P 500 by market cap and net income. The market cap concentration is slightly more than the net income concentration, and both are rising. However, as strategists note, this is quite different from the late 1990s that led up to the Tech Bubble, where market cap concentration increased with a matching concentration in net income.
This article first appeared on GuruFocus.
