Charting our Focus

 A Turning Tide for US Equities?

After a period of dominance by the megacaps, we believe the stage is set for the average stock to begin outperforming.

The equal-weighted S&P 500 Index (SPW), which gives each of its 500 companies the same contribution, regardless of size, is often used as a proxy for measuring market breadth. It has underperformed the standard S&P 500 Index (SPX), which is market capitalization-weighted and consequently dominated by the megacap stocks, in five of the past seven calendar years. Last year, the SPW underperformed the SPX by the largest margin since 1998. As a result, the SPW now trades at a 3-4 times price-to-earnings multiple discount to the SPX, the widest gap in over a decade. Historical performance shows that this could have important implications for investor portfolios. Of course, past performance is no guarantee of future results.

• The historical performance of the SPW versus the SPX suggests that extreme outperformance in either direction – with either the SPW or SPX outperforming significantly – has tended to reverse sharply.
• In two of the three calendar years since 1990 in which the SPW has underperformed the SPX by more than 10%, the SPW has outperformed the SPX the following year.
• The exception was 1998, which was followed by another dot-com boom year in which the SPW underperformed by more than 10%. The SPW then went on to outperform the SPX for six years in a row.
• Given that the SPW and SPX have historically had similar valuations, we believe the current valuation gap is not sustainable and will result in the SPW outperforming the SPX in the coming year or two.
• As a result, exposure to traditional capitalization-weighted indices such as the SPX may generate subpar returns relative to actively managed approaches.
• With this in mind, we think investors can benefit from exposure to the “average stock” through actively managed portfolios that underweight megacap stocks.

Terms and Indices

Market breadth: A set of technical indicators that evaluate the price advancement and decline of a given stock index.
Market capitalization: The value of a company that is traded on the stock market, calculated by multiplying the total number of shares by the present share price.
Megacap stock: A designation for the largest companies in the investment universe as measured by market capitalization; a common measure is those with a market capitalization above $200 billion.
Price/Earnings ratio: A valuation measure of expensiveness using a stock’s price divided its by per-share earnings.
S&P 500 Equal Weight Index: In this stock market index that tracks 500 publicly traded domestic companies, each stock makes the same contribution to the index, regardless of company size.
S&P 500 Index: A stock market index that tracks 500 publicly traded domestic companies and serves as the foundation for a wide range of investment products.

Indices are unmanaged and their returns assume reinvestment of dividends and do not reflect any fees or expenses. It is not possible to invest directly in an index.

Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of 12/31/2023.

A Word About Risk: Pioneer Multi-Asset Income Fund

The market prices of securities may go up or down, sometimes rapidly or unpredictably, due to general market conditions, such as real or perceived adverse economic, political, or regulatory conditions, recessions, inflation, changes in interest or currency rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues or adverse investor sentiment. All investments are subject to risk, including the possible loss of principal. Pioneer Multi-Asset Income (“MAI”) Fund has the ability to invest in a wide variety of securities and asset classes. Equity-linked notes (ELNs) may not perform as expected and could cause the fund to realize significant losses including its entire principal investment. Other risks include the risk of counterparty default, liquidity risk and imperfect correlation between ELNs and the underlying securities. High yield bonds possess greater price volatility, illiquidity, and possibility of default. Investments in fixed income securities involve interest rate, credit, inflation, and reinvestment risks. As interest rates rise, the value of fixed income securities falls. Prepayment risk is the chance that an issuer may exercise its right to prepay its security, if falling interest rates prompt the issuer to do so. Forced to reinvest the unanticipated proceeds at lower interest rates, the Fund would experience a decline in income and lose the opportunity for additional price appreciation. The Fund may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. Mortgage-backed securities are also subject to pre-payments. The Fund may invest in subordinated securities which may be disproportionately adversely affected by a default or even a perceived decline in creditworthiness of the issuer. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. The Fund may invest in inflation-linked securities. As inflationary expectations increase, inflation-linked securities may become more attractive, because they protect future interest payments against inflation. Conversely, as inflationary concerns decrease, inflation-linked securities will become less attractive and less valuable. The Fund may invest in insurance-linked securities (ILS). The Fund could lose a portion or all of the principal it has invested in an ILS, and the right to additional interest and/or dividend payments with respect to the security, upon the occurrence of a trigger event that leads to physical or economic loss. ILS may expose the Fund to issuer (credit) default, liquidity, and other risks. The Fund may invest in floating rate loans. The value of collateral, if any, securing a floating rate loan can decline or may be insufficient to meet the issuer’s obligations or may be difficult to liquidate. The Fund may invest in underlying funds, including ETFs. In addition to the Fund’s operating expenses, investors will indirectly bear the operating expenses of investments in any underlying funds. Investments in equity securities are subject to price fluctuation. Small-and mid-cap stocks involve greater risks and volatility than large-cap stocks. The Fund may invest in Master Limited Partnerships, which are subject to increased risks of liquidity, price valuation, control, voting rights and taxation.  The Fund may invest in zero coupon bonds and payment in kind securities, which may be more speculative and fluctuate more in value than other fixed income securities. The accrual of income from these securities are payable as taxable annual dividends to shareholders. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on performance. The Fund may invest in credit default swaps, a type of derivative, which may in some cases be illiquid, and increases credit risk since the Fund has exposure to both the issuer of the referenced obligation and the counterparty to the credit default swap. The Fund and some of the underlying funds employ leverage, which increases the volatility of investment returns and subjects the Fund to magnified losses if an underlying Fund’s investments decline in value. There is no assurance that these and other strategies used by the Fund or underlying funds will be successful. Please see the prospectus for a more complete discussion of the Fund’s risks.

Individuals are encouraged to seek advice from their financial, legal, tax and other appropriate professionals before making any investment or financial decisions or purchasing any financial, securities or investment-related product or service, including any product or service described in these materials. Amundi US does not provide investment advice or investment recommendations.

Before investing, consider the product's investment objectives, risks, charges and expenses. Contact your financial professional or Amundi US for a prospectus or summary prospectus containing this information. Read it carefully. To obtain a free prospectus or summary prospectus and for information on any Pioneer fund, please download it from our  literature section.

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