Are Large Caps Really Leading This Rally? A Market Breadth Study

Rocky White Thu, May 14, 2026 at 7:42 AM EDT 3 min read

• ^GSPC

Breadth has been a hot topic during the stock rally over the last six weeks. Critics and bears suggest the fact that a small number of large cap stocks are driving the rally means it can’t be sustained and/or increases the likelihood of a pullback.

Comparing the S&P 500 Index (SPX) to the Equal-Weighted SPX gives us a good idea about how the large cap stocks are performing compared to the smaller companies. The SPX is weighted by market capitalization so that larger companies have more influence over the movements of the index. The Equal-Weighted index gives equal weight to each company.

The chart below shows the year-to-date return of the SPX and the Equal-Weighted SPX. Through late March, the Equal-Weighted index outperformed the SPX significantly. The SPX was down almost 8% for the year while the Equal-Weighted index was down less than 2%. However, the SPX has come roaring back over the past six weeks to overtake the index. This week I’ll be looking at how stocks perform after huge rallies based on how the SPX performs compared to the Equal-Weighted index.

SPX v Equal Weigh

Six-Week Relative Strength

Going back to 1975, I recorded daily data on the six-week relative strength of the Equal-Weighted index to the SPX. Then I found dates that the SPX was at an all-time high and I broke those down into three groups based on the relative strength.

The first table shows our current situation. It shows the times the relative strength of the Equal-Weighted SPX was low (specifically, below 0.98) and the SPX was at an all-time high. Based on this, the bears have a point, especially in the shorter term. In our current situation, for the next month, the SPX averaged a loss of 0.92% with 54% of the returns positive. When the relative strength of the Equal-Weighted index was high (above 1.01), the SPX averaged 1.04%, with over the next month with 72% positive. When the relative strength has been more moderate at all-time highs, the returns are in between those. This pattern holds for the three-month returns. The longer-term returns (six and 12 months) are more mixed.

SPX ATH Equal Weight

Extreme Relative Strength

Over the past six weeks, the SPX index outperformance against the Equal-Weighted index has been extreme. Over the past few days, the relative strength of the Equal-Weighted index has been below 0.95. That’s lower than 99% of the readings going back to 1975.

The table below summarizes the returns after the Equal-Weighted SPX relative strength falls below 0.95 for the first time in at least a month. There have only been 13 other occurrences. The SPX has performed well after these instances across each of the time frames. The SPX has averaged a return of over 2% over the next month and over 18% for the next year after these instances with 85% of the returns positive. Compare that to the typical one and six-month returns of 0.85% and 10.2%.

Story Continues SPX RSI Equal Weight This next table shows how the Equal-Weighted index performed after these extremely low relative strength readings. The returns from this index have also done well after these instances. Six months after these signals, the Equal-Weighted index gained over 12% on average with 92% of the returns positive.

Equal Weight SPX In conclusion, the fact that a small portion of large-cap stocks have outperformed compared to the rest of the market is not, by itself, a bearish signal. Stocks have tended to do well after extreme cases like we’ve just seen. However, the first part of this article showed when the market has been at all-time highs, it has been more bullish going forward when more stocks participate in the rally.

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