Only twice in history! S&P 500 equal-weight index is expected to record seven consecutive weeks of decline this week

According to Zhihong Finance APP, the main U.S. stock indices remain relatively stable overall, but signs of internal market weakness are increasing. The S&P 500 equal-weighted index is set to fall for the seventh consecutive week this week; if the decline continues through Friday, it will mark only the third time in the index's history that it has fallen for seven weeks in a row.

The previous two instances occurred during the bursting of the internet bubble in 2002 and during the U.S. stock bear market sell-off in 2022. Unlike the traditional market-cap weighted indices dominated by large technology stocks, the equal-weighted index gives each component stock the same weight, thus better reflecting the overall performance of individual stocks in the U.S. market.

The internal divergence of the market has been particularly pronounced in September. So far, only two of the S&P 500's 11 sectors have recorded gains: communication services and information technology, both of which are home to many major tech giants.

Financial stocks were the worst-performing sector in September, dropping nearly 7% over the month. Meanwhile, the KBW Bank Index has continued to decline since hitting a high in mid-August, and has now entered a technical correction, meaning it has fallen at least 10% from its recent peak. This indicates that, although the major stock indices have not shown significant declines, the upward momentum is increasingly concentrated in a small number of large technology companies, while many individual stocks and sectors are in fact under significant downward pressure.

Compared to the sharp volatility within the market, the major U.S. indices still appear relatively calm on the surface. The S&P 500 is currently ending this quarter at roughly the same level as at the start of the third quarter. The Nasdaq 100 previously dipped into correction territory, but subsequently regained much of its lost ground, showing some resilience against the backdrop of rising U.S. Treasury yields and heightened concerns over the risks of artificial intelligence investment.

One major factor behind this phenomenon is the ongoing rotation between sectors and individual stocks within the market. While some stocks are rising sharply, others are falling noticeably, and these opposing forces offset each other at the index level, keeping the main stock indices stable overall.

Worth noting is that the gap between overall U.S. stock indices and individual stock performance has reached an extreme. Data shows that the divergence between the recent low volatility of the main indices and the sharp fluctuations among individual stocks and sectors is now at its highest level since the worst period following the bursting of the internet bubble in 2000.

The ongoing weakness of the S&P 500 equal-weighted index further highlights this trend. Since the traditional S&P 500 index assigns weights according to company market capitalization, gains among a few super-large technology stocks can strongly support the index; the equal-weighted index, on the other hand, reduces the influence of tech giants and better represents the overall performance of ordinary component stocks.

Therefore, although major indices such as the S&P 500 and Nasdaq 100 have not yet signaled a clear broad-based sell-off, market breadth continues to deteriorate. If the S&P 500 equal-weighted index ends up recording seven consecutive weeks of losses this week, it will mark only the third such occurrence in history after 2002 and 2022, further highlighting the current U.S. market's stark divergence: index stability amid internal pressure.