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.
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.
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.
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.
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.
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