For the past several years, the stock market has been driven primarily by the largest companies, with mega-cap technology leaders consistently pushing major indexes to new highs. This year, however, that leadership has begun to change. Market strength is broadening, and leadership is gradually shifting away from the largest stocks toward a wider range of companies.
The S&P 500 Top 50 Index, which tracks the 50 largest companies in the S&P 500, has had an unusually slow year. While the S&P 500 has gained roughly 12% (through 8/6/26), the Top 50 Index has advanced only about 2.5%, lagging both the overall index and the S&P 500 Equal Weight Index by approximately 12%. Looking back to the end of October, the Top 50 Index has essentially traded sideways for the past nine months and remains within a couple percent of where it was then. This extended period of stagnation has led to several notable changes in its relative strength.
Source: Nasdaq Dorsey Wright
Although S&P 500 Top 50 Index remains on a technical buy signal, it has spent much of the past several months consolidating. More importantly, it has begun to lose relative strength compared to the Equal Weight S&P 500. That shift recently resulted in Top 50 Index moving to its first market relative strength sell signal since 2022, highlighting the weakening leadership of the mega-cap stocks that have dominated the market for years.
These changes are also reflected in the S&P 500 Top 50 Index’s score, which has fallen significantly. On May 19th, the Top 50 Index carried a score of 5.59, consistent with the strong readings it has maintained for several years. That score has declined to 2.75, falling below the preferred threshold of 3.0 for the first time in nearly four years. This represents a meaningful deterioration in the Index's overall technical strength.
By comparison, the S&P 500 Equal Weight Index has steadily improved. After spending more than two years with a relatively modest score below 3.5, recent market action has lifted the Equal Weight Index back above that level. For the first time since 2023, the Equal Weight Index now holds a higher score than the Top 50 Index. In other words, while many of the market's largest companies have been losing momentum, the average stock within the S&P 500 has been gaining strength.
Source: Nasdaq Dorsey Wright
Much of the recent weakness among mega-cap stocks has been concentrated in large growth companies, particularly semiconductor manufacturers and other technology leaders. The Nasdaq-100 recently moved to its first technical sell signal since March and briefly entered correction territory. It has also begun to lose near-term relative strength versus the Equal Weight S&P 500.
Source: Nasdaq Dorsey Wright
Even so, the overall picture for technology remains constructive. The Nasdaq-100 Index has seen its score decline by nearly 1.5 points since its May peak, but it still maintains a solid reading of 4.36 and continues to exhibit favorable long-term relative strength. While momentum has cooled, the longer-term trend remains intact.
The current reading for the PR4050 is: U.S. Equity Core = 99.30% & Money Market = 7.75%. For the PR4050 indicator to trigger and alert us when we should consider moving to cash, U.S. Equity Core must be 40% or below and Money Market must be 50% or above.
Source: Nasdaq Dorsey Wright
Below is the most recent D.A.L.I. (Dynamic Asset Level Investing) Indicator showing International Equities and Domestic Equities in the top two spots, while both maintain a commanding lead over Cash and Fixed Income.
Source: Nasdaq Dorsey Wright
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These views are those of the author, not of the broker-dealer or its affiliates. This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. All investments involve risk, including loss of principal. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. All indices are unmanaged and may not be invested into directly.
Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Nasdaq Dorsey Wright developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.
Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolios across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The S&P 500® Index: A free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500® are those of large publicly held companies that trade on either of the two largest American stock market exchanges: the New York Stock Exchange and the NASDAQ.
MSCI World Index: A broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.