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- The market’s leadership is wider than perceived and consists of more than just the largest tech stocks, James Paulsen, chief investment strategist at The Leuthold Group, said Friday.
- While cyclical sectors trail the S&P 500 by 5% on a market-weighted basis, they exceed the benchmark on an equal-weighted basis, Paulsen highlighted.
- Similarly, the S&P 500’s outperformance over the small-cap-focused S&P 600 is halved when market weighting isn’t taken into account.
- Strong gains from tech giants “distorted many traditional market signals” and possibly shifted investors’ views of the market, the strategist added.
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Cyclical and small-cap stocks aren’t getting the credit they deserve for the market’s rapid recovery, James Paulsen, chief investment strategist at The Leuthold Group, said Friday.
Tech giants played an undeniably large role in lifting indexes from their March lows. Crowding in mega-caps hit dot-com-era levels, and their outperformance led the Nasdaq to be the first major index to erase its pandemic-induced losses. Strategists warned of a bubble forming in the market and that leadership in the months-long rally was dangerously thin.
Yet certain gauges suggest the bull market’s drivers are more varied than just the popular tech giants. While cyclical sectors trail the S&P 500 by roughly 5% on a market-weighted basis, they’ve made a full recovery from the March trough and now outpace the benchmark on an equal-weighted basis, Paulsen said.
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