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Illustration: Rae Cook/Axios

The S&P 500 is just below its record high. But most stocks in the index are actually down significantly, which has some concerned.

Why it matters: This implies that the gains driving the market index to record highs are not evenly distributed. But, it’s also not an unusual dynamic in the S&P’s recent history.

The details: According to Morgan Stanley research highlighted by Bloomberg on Friday, 56% of S&P 500 stocks were down by more than 10% from their recent highs. This compares to the S&P 500 as a whole, which is down by just 2% from its peak.

What they’re saying: Morgan Stanley chief U.S. equity strategist Mike Wilson predicts the weakness in the underperforming stocks will pull down the stronger stocks in a process he calls a “rolling correction,” eventually leading to the S&P 500 falling 10% from its high.

Yes, but: Brian Belski, BMO Capital Markets chief investment strategist, analyzed the S&P 500 since 1990 and found that it’s far from unusual to see most stocks in the market down significantly even as the index makes new highs.

  • On average, 55% of the S&P was down more than 10% from all-time highs at the points when the index closed at new highs.
  • During the period, the median stock was down an average of 12.1% from its all-time high when the S&P closed at a new high.

The big picture: Belski, who sees the S&P reaching 4,800 by year-end, acknowledges that the market performance could be “bumpy” going into the end of the year.

  • But his point is that there’s nothing particularly unusual about seeing half of the stocks in the market down significantly even as the market averages hit all-time highs. And historically, markets have often gone on to rally to even higher highs.

State of play: Investors and experts are generally pretty bearish about the short-term outlook.

  • According to the New York Fed’s new Survey of Consumer Expectations, respondents saw just a 39% likelihood that stocks would be higher in 12 months.
  • According to Deutsche Bank’s survey of market professionals, 58% of respondents said they expected the stock market to fall by 5% to 10% by the end of the year. Another 10% said the market would fall by more than 10% during the period.

The bottom line: At any given time, there are lots of winners and losers in the stock market.

  • The fact that the S&P 500 can actually be up despite so many of its components being down supports the case for being broadly diversified.

Go deeper

Kate Marino, author of Markets
Dec 15, 2021 - Economy & Business

Fed sees interest rate hikes in 2022

Gold plated seal inside the Federal Reserve System's Eccles Building. Photo: Brooks Kraft/Getty Images

The Federal Reserve announced Wednesday a plan to shorten the amount of time it's going to take to bring its emergency bond market purchases to an end — the so-called "taper."

The big picture: These purchases helped stabilize the Treasury bond market at the beginning of the COVID-19 pandemic, shoring up investor confidence and ultimately allowing stocks to begin their sharp rise.

U.S. on the cusp of full employment

Fed chair Jerome Powell during a livestreamed news conference. Photo: Michael Nagle/Bloomberg via Getty Images

The nation's top economic policymaker all but said it Wednesday: America is on the cusp of full employment.

The big picture: "The labor market by many measures is hotter than it ever was" before the pandemic, Federal Reserve chair Jerome Powell told reporters.

Updated 42 mins ago - Politics & Policy

Trump dogs “dull” DeSantis ahead of potential 2024 matchup

Photo illustration: Sarah Grillo/Axios. Photo: Paul Hennessy/SOPA Images/LightRocket via Getty Images

Donald Trump is trashing Ron DeSantis in private as an ingrate with a "dull personality" and no realistic chance of beating him in a potential 2024 showdown, according to sources who've recently talked to the former president about the Florida governor.

Why it matters: The two are among the most popular Republicans in the country, and as the former president eyes another run in 2024, he's irked by DeSantis' popularity and refusal to rule out running against him.