The Equal-Weight S&P 500 Is at Risk of a Three-Day Correction
- Recovery trade that has fueled broader rally is now in doubt
- Cyclical shares, small-caps leading the market lower
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As a proxy for the breadth of the recovery rally, nothing beat the equal-weight S&P 500, whose market-cap-agnostic structure let it benefit from giant gains in the most beaten-down stocks. But what worked going up is creating pain on the way down.
It’s taken just three days for a version of the S&P 500 that weights Southwest Airlines the same as Microsoft to get to the brink of a correction. Down 5.3% as of 1:30 p.m. in New York, the gauge has extended is losses from Monday to 10%. The decline is almost double the three-day retreat seen in the traditional S&P 500 that give more sway to bigger companies.