Good morning! As long-time subscribers know, I believe data is an incredible way to tell the story of financial markets.

When you can visualize that data with charts, the same stories become easier to learn and remember.

Today’s edition does just that — an entire chapter of the stock market told in one chart.

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All things equal…

Wall Street folks like to say the stock market looks “healthy” when a lot of different names are moving in the same direction.

Just the same, commentators consider a top-heavy stock market “unhealthy.”

By that logic, it’s safe to say the S&P 500 looks healthier than it has in years coming out of the third quarter as well as September — historically the worst month of the year for investors.

In the three months up to September 30, the S&P 500 gained nearly 6%. 

That is certainly strong.

Yet those returns don’t tell us as much about the health of the market compared to the equal-weighted S&P 500, which climbed more than 9% in the same stretch. 

That marked the biggest quarterly outperformance by the equal-weighted S&P 500 since December 2022, as well as the index’s best third quarter since 2010, Bank of America analysts led by Savita Subramanian wrote in a note Wednesday.

To be clear, the market-cap weighted and the equal-weighted S&P 500 are two versions of the same index.

In the former, big companies like Apple and Microsoft have a greater influence over the performance of the entire index.

In the latter, each company holds equal influence, which reduces the dominance of the giants and grants the “little guys” more of a say.  

When the equal-weighted version outperforms the traditional one, it signals a few things:

Eric Freedman, the CIO of US Bank Asset Management, called the stock market’s third-quarter performance “superb and broad-based.”

“Inflation is falling, interest rate cuts are in motion, and earnings are trending higher,” Freedman wrote in a note to clients. “All of which help provide valuation support.”

Meanwhile, 67% of individual stocks in the S&P 500 outperformed the index in the third quarter. That hasn’t happened since the first quarter of 2002. 

Typically, according to Bank of America, less than one-third of names do that in a given quarter. 

One more sign of a healthy market: Nine of the 11 S&P 500 sectors outperformed the benchmark index in the third quarter. 

“While it’s just one quarter of broad dispersion, that’s the kind of sector rotation and broadening market we’re looking for to make the bull market more durable,” said strategist Barry Gilbert of Carson Group. 

“Market broadening is not only a sign of a healthy market,” he added. “It can also be beneficial to investors, since it would make it easier to diversify some risk without sacrificing return.”

Feedback or thoughts? Reply to this email or let me know on X @philrosenn.

Elsewhere:

🚗 Tesla stock tumbled. The EV maker announced third-quarter deliveries Wednesday that fell slightly short of Wall Street’s expectations, dragging the stock more than 3% lower. Tesla delivered 462,890 vehicles in the three months through the end of September, 6.4% more than the prior quarter. (CNBC)

💰️ Leaving your job isn’t paying as well as before. New data from ADP showed the median annual pay for job switchers dropped 6.6% in September — the lowest growth rate in three years. Economists say it shows that the labor market is less dynamic and more sluggish than just a few months ago. (Yahoo Finance)

📈 Goldman Sachs is very optimistic on stocks. Managing director Scott Rubner says seasonal trends could help the S&P 500 finish the year above 6,000. “I am bullish on US equities for a year-end rally starting on Oct. 28 and I am worried that my 6,000 target is too low.” (Bloomberg)

Rapid-fire:

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