The S&P 500 closed out September with only a modest loss, but the average stock in the index is faring far worse. A record-wide gap has opened between the benchmark and its equal-weighted version, and small caps have sold off hard even as the index trades near record territory.
A record gap beneath a steady headline
The S&P 500 eked out a modest loss for September, masking a much rougher month underneath. Small- and midcap indexes such as the Russell 2000 and the S&P MidCap 400 sold off hard, while many S&P 500 members were recently trading in correction territory, a drop of 10% or more from a recent high. Technology was the only S&P 500 sector to finish September higher.
Beneath that, the gap between a popular S&P 500 ETF and one tracking its equal-weighted version has reached one of its widest levels on record going back to the early 2000s, according to Dow Jones Market Data. The equal-weighted S&P 500 was trading about 6% below a record high reached last month.
Equal-weighted stocks track a losing streak
The Invesco S&P 500 Equal Weight ETF moved higher Thursday but remained on track to log a seventh straight week in the red, which would tie the longest losing streak for the median S&P 500 stock since May 2022. An eighth straight week would make it the longest losing streak on record for the fund going back to at least 2003.
This weakness shows up elsewhere too. Stocks on the New York Stock Exchange hitting new 52-week lows have outnumbered those hitting new highs for 23 straight sessions, the longest such streak since October 2023. Roughly 80% of S&P 500 stocks were recently trading below their 50-day moving average, a level last seen in March during the selloff tied to the Iran conflict. About 60% were trading below their 200-day moving average, a level not seen since the April 2025 "liberation day" tariff tantrum.
What comes next is split two ways
Jonathan Krinsky, a technical strategist at BTIG, points to rising Treasury yields as a driver: as long-dated yields climbed over the summer, the ratio between an ETF tracking the Nasdaq-100 and one tracking the small-cap Russell 2000 rose in lockstep. He said that dynamic also means investors should expect a sharp rally in small-cap stocks if yields suddenly turn lower.
From here on, either small caps and other rate-sensitive stocks lead a broad rally as bond volatility cools, or the small group of AI names propping up the index — including Meta Platforms and Microsoft — starts to struggle itself. According to MarketWatch: "That's the million-dollar question right now", BTIG's Krinsky said in an interview. He expects the performance gap between the S&P 500 and its equal-weighted sibling to narrow regardless of which way the index moves.
Source: MarketWatch
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