Micron has retreated 25% from its peak, Microsoft is down 27%, SanDisk is down 31%, SpaceX is down 33%, Netflix is down 45%, and Oracle has plummeted 60%. However, the S&P 500 remains near historical highs, indicating that the current market is not experiencing a broad-based rally, but rather a sharp internal rotation.
The S&P 500 uses market capitalization weighting; a rise in a few heavyweight stocks can offset a decline in many constituent stocks. SpaceX is not yet included in the index and will not directly affect it. Meanwhile, funds are withdrawing from previously overvalued and high-flying chip, software, and streaming media leaders, shifting to other large-cap technology stocks, financials, consumer goods, and value sectors.
Therefore, high index levels do not mean that star stocks are immune to bear markets; rather, the driving force behind the rise has shifted to a different group of companies. Behind the seemingly calm index lies a high degree of divergence between industries and individual stocks.
