Warning Signs

Lyrical Asset Management

Research

6 Pages

Lyrical flags the extreme performance gap between the S&P 500 and its equal-weighted counterpart as a historic red flag. Based on past cycles, such episodes have consistently led to long-term underperformance of mega-cap–driven indexes and significant outperformance of both equal-weight and value strategies.

As of June 30, 2024

Key Takeaways

Mega-cap skew is historic: In Q2 2024, 75% of S&P 500 stocks underperformed, creating one of the widest gaps ever with the equal-weight index
Valuation premium is stretched: S&P 500 now trades at a 34% P/E premium to equal-weight despite slower earnings growth
Value shows strong potential: Cheapest stocks outperformed the S&P 500 by an average of 51% over the next 3 years after similar episodes
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