Divergence in US Stocks Intensifies, S&P 500 Component Median Falls 15%

On October 17, U.S. financial conditions tightened significantly, with a few large tech stocks supporting index performance while ordinary stocks continued to face pressure. Mike Wilson, Chief Equity Strategist at Morgan Stanley, warned that the tightening of financial conditions has effects similar to the Federal Reserve's interest rate hikes, with the impact primarily concentrated on ordinary stocks. Data shows that the median S&P 500 component has fallen about 15% from its 52-week high, marking one of the worst performances since the bursting of the internet bubble; the equal-weighted S&P 500 index has lagged the market-cap weighted index by about 6% over the past six months. The equity risk premium of the S&P 500 has fallen below zero, indicating a decrease in the attractiveness of stocks relative to U.S. Treasuries. Wilson pointed out that the current pressure mainly stems from valuation contraction and has not yet clearly evolved into economic growth risks. Nominal GDP growth remains strong, and corporate earnings continue to grow, but if real interest rates keep rising, market valuations could come under further pressure. Goldman Sachs warned that U.S. stock supply could increase significantly by 2027 due to the expiration of lock-up periods. Whether financial stocks can stabilize and whether U.S. Treasury volatility will decline will become important indicators for assessing market direction. The U.S. stock market faces two possibilities: a rebound in ordinary stocks or a decline in large tech stocks, leading the index to converge towards the overall market's weak performance.

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