S&P 500 Near Record Highs, But 60% of Stocks Are in a Bear Market. Is SPY Hiding a Bigger Problem?

The S&P 500 is hovering near record highs, but weakness beneath the surface is raising questions about the sustainability of Wall Street’s rally./p> div class="bz-read-next-block" data-variant="card" data-news-mode="manual" >

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According to an analysis by The Kobeissi Letter, 59% of S&P 500 constituents are down at least 20% from their all-time highs, while 84% have fallen at least 10%. Yet just 10 stocks have contributed 70% of the benchmark’s gains since the March 30 market bottom.

The divergence highlights how gains concentrated in a handful of large technology and semiconductor companies can mask widespread weakness across the broader market.

SPY and VOO: Same Index, Similar Exposure

The SPDR S&P 500 ETF Trust (NYSE:SPY)/a> and Vanguard S&P 500 ETF (NYSE:VOO)/a> both track the market-cap-weighted S&P 500. Consequently, their returns tend to move closely together, with the largest companies exerting the greatest influence on performance.

Their primary difference is cost. VOO charges an annual expense ratio of 0.03%, compared with approximately 0.0945% for SPY, making VOO the cheaper option for investors seeking long-term S&P 500 exposure.

Neither ETF eliminates the concentration risk inherent in the benchmark. If a small group of mega-cap stocks continues to outperform, both funds can remain strong even as many constituents struggle.

Could RSP Benefit if Market Leadership Broadens?

The Invesco S&P 500 Equal Weight ETF (NYSE:RSP)/a> offers a different way to invest in the same 500 companies. Unlike SPY and VOO, which allocate more money to companies with larger market capitalizations, RSP gives each constituent roughly the same weight and periodically rebalances its portfolio.

This distinction matters when market performance is concentrated in a handful of mega-cap stocks. In SPY and VOO, gains in the largest companies can offset losses across dozens of smaller constituents. RSP reduces that dominance, giving weaker-performing companies a greater influence on the fund’s overall returns.

The concentration gap is substantial. Nvidia Corp (NASDAQ:NVDA)/a> accounts for 7.88% of SPY, Apple, Inc (NASDAQ:AAPL)/a> for 7.45% and Microsoft Corp (NASDAQ:MSFT)/a> for 5.94%. Together, these three stocks represented more than 21% of SPY’s portfolio. RSP’s equal-weight methodology limits any individual constituent to roughly 0.2%–0.3% of the fund, depending on market movements.

Recent performance, however, does not yet show a decisive advantage for equal weighting. SPY has gained 11.8% year to date, while RSP had advanced 12.3% — a minor difference.

VOO provides almost the same market-cap-weighted exposure as SPY but at a lower annual expense ratio. RSP charges 0.20%. On a $10,000 investment, those expense ratios translate to roughly $3, $9.45 and $20 annually, respectively.

If more S&P 500 stocks recover and participate in the rally, RSP could benefit from broader market participation. However, if mega-cap technology stocks continue to lead, SPY and VOO could outperform. RSP’s equal-weighting approach also means it is not automatically safer during a widespread selloff.

Opportunity or Warning?

The breadth data raises the possibility that beaten-down stocks could recover if earnings and market sentiment improve. But a steep drawdown does not automatically make a stock undervalued.

Investors should watch earnings revisions, constituent participation and whether gains spread beyond the largest companies before treating the so-called "stealth bear market" as a buying opportunity./p> div class="bz-read-next-block" data-variant="card" data-news-mode="manual" >

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