The S&P 500® rose by 10% in the 12 months ending on Oct. 31, 2020, trouncing the S&P 500 Equal Weight Index by 9.1%, as seen in Exhibit 1. While such outperformance is not unprecedented, it does remind us of previous market peaks (especially in December 1999), and raises questions about whether a reversal may be in the cards.
While these periods may feel similar, they have notable differences. It is important to remember that by definition, the capitalization-weighted S&P 500 has no factor tilts. We can, however, look under the market’s figurative hood by analyzing the differences between the S&P 500 and its average constituent, represented by the S&P 500 Equal Weight Index.
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