Friday’s action brought another notable outperformance day for small and mid cap indices over large caps. This continues a near-term trend over the last roughly 30 days in which the smaller indices have seen better performance but also increases in participation. The bullish percent (BP) for the S&P 600 (^BPSPSML) reversed back into Xs on August 13^th, while the BP for the S&P 400 (^BPSPMID) shifted back in Xs following Friday’s (8/22) action. This places all three BPs – including the BP for the S&P 500 (^BPSPX) – with readings near the 60%, but the BP for the S&P 500 still remains in Os as of Monday’s (8/25) close.

This isn’t to call large cap leadership fall from grace but more highlight the near-term trend from mid and small caps and what potential opportunities may be available. For a recent piece on small cap’s performance and near-term action, check out the articles from the Daily Equity Report from August 13^th and 15^th. Bearing that in mind, the pulse today will focus on participation within the S&P 400 Mid Cap Index. The table below breaks down the level of participation for S&P 400 stocks by NDW Subsector or Industry Groups along with highlighting the average technical attribute rating of stocks maintaining buy signals.  

Banks and Building are the NDW Groups within the S&P 400 with the largest number of stocks returning to buy signals, but it is intriguing to see the average technical attribute being low among those stocks maintaining buy signals. This suggests that stocks that have reside on buy signals are stocks that maintain negative RS in some fashion. Notable NDW Groups with increases in participation along with the average technical attribute among those stocks on buy signals being above the acceptable 3 threshold include Machinery and Tools, Oil Service, Transport/Non Air, and Wall Street. For those looking to delve further into recent action within mid caps or sectors look to the Security Screener under the Securities tab.

One of the key talking points in the market over the last few years has been increasing market share by a handful of names within the S&P 500 Index (SPX). The impact on asset allocation and market behavior due to higher market concentration has at least been felt by most if not at least led to changes in how asset managers are handling money today. Market environments change over time, and while it doesn’t mean core tenants of our investment philosophy change, it does benefit us to understand how these changes affect your process. While the name of the index itself has not changed, the S&P 500 Index has significantly transformed so far this decade.

Looking at a snapshot of the holdings, weightings, and sector weightings of the SPDR S&P 500 ETF Trust (SPY) at the start of the 2020s versus now there are some glaring differences. To start, the top 10 holdings within the index tracking ETF have seen some changes. Procter & Gamble (PG), Visa (V), and Johnson & Johnson (JNJ) were knocked out of the top 10 with Tesla (TSLA), Broadcom (AVGO), and most notably Nvidia (NVDA) taking their spots. NVDA is now the largest holding within SPY. The starkest difference between the top 10 stocks from 12/31/2019 until the present is their total weight within the index. Entering the decade, the top 10 stocks in the SPX accounted for 22.64% whereas they now account for 37.98% of the SPX, an over 50% increase in total weighting. The largest stock entering 2020 was AAPL with a weighing of 4.57% and while its weight has increased to 6.21% today, NVDA is now the most weighted stock in the SPX at 8.02%.

The underlying sector exposure of the S&P 500 has also changed with most sectors declining in exposure. The only two exceptions are information technology and consumer discretionary with the former having changed the most. At the start of the 2020s, information technology was comfortably the largest sector in the S&P 500 and it has only gone on to expand its lead going from 18.81% to 33.55% in just under six years. Just over a third of the S&P 500’s sector exposure is solely in information technology. The biggest losers with respect to sector exposure were financials, healthcare, and consumer staples each dropping by more than two percent. Information technology is edging closer to 40% of the domestic equity benchmark which is many firms' limit when it comes to sector exposure for actively managed strategies.

The big names getting bigger has been good the S&P 500 from a performance perspective as it has gained almost 100% in the 2020s. However, this has increased concentration risk whether from a stock or sector perspective for people leaning heavily on the S&P 500 for equity exposure. As it stands today, for every $1 put into an S&P 500 tracking fund, $0.25 goes to just four stocks or $0.33 to a single sector. This is an important talking point with clients who may be more risk averse and think that simply buying and holding the “market” is relatively safe for their equity exposure. While this has been truer at some points in the past, it is not the case today. A simple question to ask a client, “Are you comfortable having 25% of your money in just four stocks?” I would go out on a limb and assume that most would not be comfortable in that situation, however, that is exactly what just owning SPY does for equity exposure. This is a great talking point for clients as it presents a very real problem with just “buying the market” and opens the door for what you, the advisor, can offer them as an asset manager.

Daily Option Ideas for August 26, 2025