LIVE MARKETS-As the equal-weighted S&P 500 perks up, traders eye relative strength shifts

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AS THE EQUAL-WEIGHTED S&P 500 PERKS UP, TRADERS EYE RELATIVE STRENGTH SHIFTS

With just two trading days to go in 2025, the Mag 7 group of megacap stocks .MAG is on pace to outperform the S&P 500 .SPX index for a third year in a row.

Indeed, MAG is up 23% YTD vs. an SPX gain of just over 17%. That said, the MAG/SPX ratio is on track for its smallest yearly rise over this three-year period. Additionally, the current quarterly gain in the ratio is its smallest since Q4 2023.

In any event, given megacap outperformance, it's perhaps no surprise that the equal-weighted S&P 500 index .SPXEW is on pace to underperform the cap-weighted S&P 500 index for a third year in a row.

However, with a pattern that is essentially a mirror image of the MAG/SPX ratio, the SPXEW/SPX ratio is on pace to post its smallest yearly decline over this three-year period.

Of note, since October 29, when the SPXEW/SPX ratio fell to 1.109, or its lowest level since April 2003, the equal-weighted index has outperformed the cap-weighted index. It's also not surprising that with this, October 29 marked the low in the ratio of value .IVX vs. growth .IGX.

Traders will be assessing momentum and relative strength into early 2026 to see if these late-2025 shifts in favor of the equal-weighted index, and value, will persist.

That said, the SPXEW/SPX ratio has work to do to suggest its recent upturn is anything more than just another shorter-term counter-reaction.

The equal-weighted/cap-weighted ratio, which ended Monday at 1.136, faces hurdles in the form of its descending 200-day moving average, which ended Monday at 1.18, as well as the 2008 and 2024 lows, both at 1.189. The April 2025 peak was at 1.256.

An SPXEW/SPX ratio break of 1.107 would suggest the longer-term trend of equal-weighted underperformance is resuming in earnest.

(Terence Gabriel)

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