Almost half of the S&P 500 intersects with the rest of the market.

Almost half of the stock S&P500 It is trending against the index with a negative beta, an unusual divergence that is becoming increasingly difficult to ignore.

According to a recent note from Goldman Sachs, about 45% of stocks in the S&P 500 have a negative three-month beta. This data is broadly consistent with CNBC’s findings that, based on weekly returns, nearly 40% of S&P 500 stocks have a negative three-month beta relative to the index, and 17% have a negative one-year beta.

Beta measures how a stock performs relative to the rest of the market. A negative beta means that the individual stock’s returns moved in the opposite direction of the S&P 500 during the measurement period.

The spike in negative beta stocks coincides with other abnormal market signals. Last Monday, the S&P rose 1.5%. On the same day, 30 stocks hit 52-week lows, while only seven stocks hit new highs. The last time the S&P 500 rose at least 1%, with new lows exceeding new highs while staying within 1% of its new 52-week high, was in December 1999, just before the height of the dot-com boom, said Jason Goepfert, founder of Sentiment Trader.

Both indicators show that market indexes can maintain record or near-record levels despite wide divergences between individual stocks.

Widening disparity

This large gap largely reflects the concentration of the S&P 500, said Adam Turnquist, chief technical strategist at LPL Financial.

Large-cap technology companies are heavily weighted in the benchmark, meaning the strong performance of a few stocks can push the index higher even when many others are doing the opposite.

“You just need a few of these mega-cap names to work, you don’t need a lot of small-weighted stocks to work,” Turnquist told CNBC, noting the unusually low correlation between stocks in the S&P 500.

Bradley Krom, director of investment strategy at WisdomTree, said the same dynamics explain why the index as a whole looks relatively benign even when individual stocks are making big moves.

“Beta is a function of correlation and volatility,” Krom said. When stock prices experience large fluctuations at different times and for different reasons, those fluctuations can offset each other at the index level.

In July, AllianceBernstein, using one year of trailing returns, found an unprecedented share of U.S. stocks exhibiting negative beta as AI winners drive market gains.

While semiconductor manufacturers, hardware companies, and other beneficiaries of AI infrastructure are benefiting from huge capital investments, companies outside the AI ​​industry are struggling to catch up.

“Narrow markets, however, can also distort the signals investors receive from index returns. When performance is dominated by a small number of companies, many financially healthy companies may lag or even decline simply because they are not directly tied to the strongest market story,” wrote Kurt Feuermann, chief investment officer for the Select U.S. Equity Portfolio at AllianceBernstein.

negative energy

Negative beta energy stocks are driven by a variety of forces.

“The other part of the story is energy. That’s been noticeable this year, with oil prices going up, energy stocks going up, and then the rest of the market trading down,” Turnquist said, seeing energy as a key part of the negative beta story along with more defensive sectors.

Earlier this month, Evercore ISI used a six-month index to extract 115 S&P 500 stocks with negative beta, a list skewed towards energy, utilities and consumer staples. The investment bank called the energy sector a “synthetic S&P 500 put option” because of how it reacts to geopolitical pressures.

Turnquist believes the number of negative beta stocks could decline as market dominance expands. But he expects dispersion to remain high as investors continue to be selective about the beneficiaries of their AI investments and seek returns from them.

WisdomTree’s Krom expects recent extreme readings to eventually revert to the average. He said a similar spike was seen during the dot-com bubble of 1999-2000, when market concentration and large moves into a narrow group of stocks caused abnormal divergences.

Turnquist argued that when comparing today to the dot-com era, big technology companies are now more mature businesses with established revenues and products. Chrome has the same idea. He said the individual products that drive revenue don’t have the historical relationships that they had in the past.

“The current market environment is not the same as it was in 2000,” Krom said. The negative beta we see today is “ultimately due to the degree of market concentration.”