A key segment of the U.S. stock market, comprised of companies with strong balance sheets and stable earnings, is experiencing a period of underperformance relative to the rest of the market, drawing comparisons to the dot-com bubble of 1999.
S&P 500 Quality Index Lags Broader Market By Most In 26 Years
According to the data pointed out by Jeff Weniger, the Head of Equities at WisdomTree, the S&P 500 Quality Index has lagged the broader S&P 500 by a substantial margin.
This lag is the most pronounced since 1999, a period known for speculative investor behavior that often favored high-growth potential over fundamental strength.
S&P 500 Gains Outpace The Quality Index
Performance data confirms this trend, showing the Quality Index returned 15.13% over the last six months, while the benchmark S&P 500 surged 23.76% in the same period.
The S&P 500 Quality Index is designed to track 100 stocks from the S&P 500 with the highest “quality score,” which is based on return on equity, accruals, and financial leverage. The index's top holdings include market giants like Apple Inc. (NASDAQ:AAPL), Mastercard Inc. (NYSE:MA), General Electric Co. (NYSE:GE), Costco Wholesale Corp. (NASDAQ:COST)
| Indices / ETFs | Six Month Performance | YTD Performance | One Year Performance |
| S&P 500 Quality Index | 15.13% | 10.52% | 9.57% |
| Invesco S&P 500 Quality ETF (NYSE:SPHQ) | 15.17% | 10.47% | 9.55% |
| S&P 500 | 23.76% | 15.08% | 16.60% |
See Also: Jeff Bezos, David Solomon And Now Sam Altman Warns Of A Brewing AI Bubble, But Expert Says ‘They Want The Bubble To Pop:’ Here’s Why
Top Quality Index Constituents Show Divergence
A closer look at the performance of these top constituents reveals a stark divergence that explains the index’s overall lag.
While industrial components like Caterpillar Inc. (NYSE:CAT), GE Vernova Inc. (NYSE:GEV) posted massive six-month gains of 91.38% and 66.81%, respectively, they were weighed down by negative returns from consumer staples leader Procter & Gamble Co. (NYSE:PG) and technology firm Adobe Inc. (NASDAQ:ADBE).
Even a strong 29.78% gain from Apple, the index’s largest constituent by weight, was not enough to keep pace with the broader market’s rally.
This dynamic, where fundamentally sound companies trail the market, has analysts like Weniger pointing to historical parallels that suggest a potential increase in market froth. The index rebalances its constituents semi-annually in June and December.
| Quality Index Top 10 Constituents | Sector | Six Month Performance | YTD Performance | One Year Performance |
| Apple Inc. (NASDAQ:AAPL) | Information Technology | 29.78% | 5.83% | 12.42% |
| Mastercard Inc. (NYSE:MA) | Financials | 11.84% | 10.34% | 15.30% |
| General Electric Co. (NYSE:GE) | Industrials | 61.56% | 79.46% | 59.85% |
| Procter & Gamble Co. (NYSE:PG) | Consumer Staples | -7.16% | -9.21% | -10.98% |
| Costco Wholesale Corp. (NASDAQ:COST) | Consumer Staples | -5.22% | 0.55% | 0.63% |
| Visa Inc. (NYSE:V) | Financials | 5.69% | 11.76% | 26.88% |
| Coca-Cola Co. (NYSE:KO) | Consumer Staples | -5.48% | 6.92% | -4.96% |
| Caterpillar Inc. (NYSE:CAT) | Industrials | 66.81% | 39.57% | 26.74% |
| GE Vernova Inc. (NYSE:GEV) | Industrials | 91.38% | 84.53% | 134.60% |
| Adobe Inc. (NASDAQ:ADBE) | Information Technology | -4.35% | -20.91% | -29.41% |
Price Action
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, were mixed in premarket on Thursday. The SPY was up 0.0089% at $673.17, while the QQQ declined 0.0082% to $611.39, according to Benzinga Pro data.
Read Next:
- Dot-Com Bubble Clone Or Bull Market? Get Ready For 1999-Style Market Melt-Up, Warns Fidelity's Timmer As He Notes ';Juicy' Similarities
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga.
Photo: Shutterstock
