Are Large Caps Really Leading This Rally? A Market Breadth Study

• The SPX rallied sharply over six weeks to reach all-time highs after being down nearly 8% year-to-date through late March, while the Equal-Weighted index significantly underperformed
• After the 13 prior instances when Equal-Weighted SPX relative strength dropped below 0.95, markets gained an average of 2% over one month and 18% over 12 months with 85% positive returns
• Short-term performance favors broader market rallies: at all-time highs with high equal-weight relative strength (above 1.01), the SPX averaged 1.04% gains over one month versus -0.92% when relative strength was low (below 0.98)

Market Summary: Large-Cap Rally and Breadth Analysis

Key Findings

Schaeffers Research conducted a comprehensive market breadth study examining the recent six-week rally driven predominantly by large-cap stocks. The analysis compares the S&P 500 Index (SPX) performance against its Equal-Weighted counterpart to assess market health and future implications.

Market Performance Data

Year-to-Date Dynamics:

• Through late March 2026, the Equal-Weighted SPX significantly outperformed, down less than 2% versus the SPX's nearly 8% decline
• Over the past six weeks, the SPX reversed dramatically, overtaking the Equal-Weighted index
• Current relative strength of the Equal-Weighted index has fallen below 0.95—lower than 99% of readings since 1975

Historical Analysis Results

Near-Term Performance (Low Relative Strength Scenarios):

When the Equal-Weighted index shows relative strength below 0.98 at all-time highs:

• One-month forward: SPX averaged -0.92% loss with 54% positive returns
• Contrast with high relative strength (above 1.01): 1.04% average gain, 72% positive

Extreme Underperformance Signals:

When relative strength drops below 0.95 (only 13 prior occurrences since 1975):

• One-month forward: SPX averaged +2% gain
• Twelve-month forward: +18% average return with 85% positive outcomes
• Equal-Weighted index six-month performance: +12% average with 92% positive returns

Market Implications

Despite concerns about narrow market leadership, historical data suggests extreme large-cap outperformance has been bullish rather than bearish. However, the study notes that rallies with broader participation historically show stronger forward performance when markets are at all-time highs, particularly over one-to-three month periods.