But in all of 2007 so far, the biggest contributors to the S&P 500’s rally include just one company with a $150 billion market cap or more, AT&T. The megacap advances in April suggest a flight to safety — investors more willing to bet on global conglomerates — while the lack of broader market gains suggests investors are worried about economic growth. Breadth has been negative on four of the past five trading days; only Friday’s massive rally helped more stocks finish higher than lower on the day on the Big Board.
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As noted in earlier posts, outperformance of late has been concentrated in megacap stocks. The exchange-traded fund tracking the S&P 100 has outdone those tracking the S&P Mid-Cap 400 and Small-Cap 600, as well as the Russell Microcap index. The largest-cap stocks trail small- and mid-cap names on the year, but have rocketed ahead in the last month, gaining 4.75% compared with the 3.7% in both the Midcap ETF and iShares SmallCap ETF. It may not persist, but it does point to both a flight to safety and indication that those companies have the ability to offset dollar weakness with overseas sales.
Take a look at this chart, which is a comparison of the utilities ETF versus the S&P 500 ETF.
Utilities are clearly moving up in relation to the broader indexes, indicating investors are looking for quality and safety right now.
