Call it a Santa Claus rally, but breadth and price action have improved in the past few days following an extremely weak stint in breadth to start the month. At multiple points last week, we discussed the horrible breadth that kicked off this month which was evident through a record streak of declines in the equal weight S&P 500  (RSP).  Of course, when looking at the market cap version of the index (SPY), declines were actually not too severe.  As discussed in today's Morning Lineup, whereas equal weight indices have broken uptrends, market cap versions of the S&P 500 and Nasdaq, bolstered by stronger performance in mega caps, still have intact uptrends.

Taking a look at sectors, as shown in the table below, whereas the market cap S&P 500 (SPY) has gained over 85% in the past five years, the equal weight version (RSP) has underperformed by more than 30 percentage points with a smaller gain of 52.7%.  There are six of eleven sectors that have similarly seen their market cap weighted versions outperform the equal weight with the largest gap being the Tech sector. The best performer for both market cap and equal weight ETFs is Tech, with the market cap weighted Tech sector (XLK) up 160% in the past five years compared to a still great but much smaller 93% gain in the equal weight sector ETF (RSPT).  Conversely, Energy, Industrials, Materials, Real Estate, and Utilities have all seen equal weight outperformance. Of those groups, Industrials have the largest performance gap between the two methodologies with the market cap ETF (XLI) underperforming the equal weight ETF (RSPN) by almost 24 percentage points.

In the charts below we show the long-term performance of the S&P 500 and its sector ETFs on market cap weighted and equal weight methodologies.  While there are various sized gaps in performance between market cap and equal weight sectors, we would highlight that there are some sectors with notable divergences when looking at the chart. Since early 2023, Communication Services has seen the market cap version (XLC) take off whereas the equal weight (RSPC) has yet to even surpass mid-2021 highs.  Consumer Discretionary is a similar story with a big ramp higher in the market cap (XLY) version especially in the past few months.  Consumer Staples is the other sector with one of the most significant divergences as the equal weight ETF (RSPS) has actually been seeing lower lows and lower highs whereas the market cap weighted ETF (XLP) is in an uptrend (albeit roll ling over again in the past few months).

(Click on image to enlarge)

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