2025 has been busy. We have talked about expanded breadth, then sharply narrowing breadth.... and are now back towards a wider market. Today we dust off a key RS relationship between SPX and SPXEWI to see what you need to know.

There are virtually endless combinations of relative strength charts you can run on the NDW platform at any point in time. Most of us (yes, even the analyst team) won’t be able to ever visit even a fraction of the available charts in our lifetime… which is why it is important to monitor those that really matter. The idea of something mattering at all is subjective, but most of us would agree that a “meaningful” relative strength chart helps us gain insight into who is winning a key matchup. Again, a hard and fast rule to define a “key relationship” will be a tad spotty, but more often than not we will focus on large, overarching trends that help guide our hand in more than one investment decision. Knowing what one stock is beating another is certainly useful, but knowing if we should broadly be risk on or risk off with new accounts/cash can help us gain perspective through a wider lens.

For many of us, one of these key relationships will be watching the cap- and equal-weighted S&P 500 as a north star into what kind of stocks are leading the way. For the last decade, cap-weighted options have largely had their time in the sun as mega-cap tech expanded its reach at the expense of the “average” stock. This paradigm isn’t anything that is particularly new, and today’s piece won’t challenge this idea, but will serve as a general reminder how the technicals come into play and how you can take advantage of trends over time.

The genesis for this conversation was the 1% relative strength chart between cap-weighted SPX and equal-weighted SPXEWI (included below). While this chart has maintained a buy signal since mid-2023, it reversed back down into O’s favoring SPXEWI following action on Monday. This serves as the first action favoring equal weight options since the 1st quarter of the year and comes as market breadth expanded off near-term lows. Following either signal or column switching has been profitable since the early 90’s, speaking to the consistency of the chart. There are largely two trains of thought here:

• Other points of equal weight leadership have been fleeting since 2023 and near term outperformance for equal weight representatives is stretched (more on this later). Stay the course with cap weighted names which maintain long-term strength.
• BUT every meaningful change in leadership starts with a simple three box reversal. Equal-weighted options also look strong as breadth has expanded. The risk/reward profile to adding to equal-weight exposure is still attractive.

Both arguments have merit. The rolling 1-month performance spread favoring SPXEWI sits at ~2.1% (as of 12/16/25, a 90th percentile move dating back to 1990) suggesting that here might not be the best time to go out and add more equal-weighted exposure. Meanwhile, long-term strength remains largely in line with your cap-weighted names via the DALI or ACGS pages, urging us to not enter into anything too hastily. Perhaps most importantly, there is seemingly more business risk than ever for not keeping up with the cap-weighted S&P 500. Being too quick to trade in your ~7% exposure to NVDA via SPY for the ~.20% exposure via RSP can leave you with a very difficult conversation with clients as you open up the new year…. Assuming this reversal is a mere headfake and the long-term preference resides with mega-cap names.

At the same time, equal weight names have shown vast improvement over the last month or so as breadth has expanded. While it still lags behind the average cap weighed fund, the near term trend comparing the two groups via the asset class group score pages shows a rapid uptick in strength for equal weighted assets. Both groups score above 4.0, signaling strength for either group as we close out 2025. While near-term outperformance is stretched in favor of SPXEWI, it is anything but that in the long term. SPXEWI has underperformed SPX by nearly 40% over the last three years. That isn’t to say that a rebound is “needed” by any form of the word (things can continue to stretch as evidenced by the dotcom bubble or coming off the bottom of the GFC) but does add to the idea that the long-term risk/reward profile is at least worth considering when appropriate in client accounts.

The most compelling argument for either option will be entirely client dependent. If you have a client who tracks the cap-weighted performance via the nightly news and will cause major headaches if you lag behind, maintain your exposure to the cap-weighted options as they aren’t “weak” by any form. On the other hand, if you have a client already over their risk budget towards a handful of technology names, take the recent developments as a sign that you’re in the clear to diversify into a wider pool of names. Under either scenario, continue to watch the charts to tell us if this equal-weighted outperformance is just another flash in the pan or something a tad more meaningful.