U.S. stocks show sharp divergence as mid-cap S&P 500 lags 15% below its peak

Huoxing Finance reports that on October 17, as U.S. Treasury yields, the dollar, and oil prices rose, U.S. financial conditions tightened significantly, leading to pronounced divergence in U.S. equities: a handful of large tech stocks supported index performance, while broader stocks continued to face pressure. Morgan Stanley’s Chief Equity Strategist, Mike Wilson, warned that tightening financial conditions are producing an effect similar to Fed rate hikes, but the impact is concentrated primarily on non-tech stocks. Data shows that the median S&P 500 constituent has declined approximately 15% from its 52-week high—the worst performance since the dot-com bubble burst—and the S&P 500 equal-weight index has underperformed the market-cap-weighted index by about 6% over the past six months. Meanwhile, the S&P 500 equity risk premium has fallen below zero, indicating that stocks’ valuation appeal relative to U.S. Treasuries has further diminished. Wilson noted that current pressure stems primarily from valuation contraction and has not yet clearly translated into a growth risk. Nominal GDP growth remains robust, and corporate earnings continue to expand; however, if real interest rates continue to rise, market valuations may face further downward pressure. Goldman Sachs warned that U.S. equity supply could surge in 2027 due to the expiration of lock-up periods. Going forward, whether financial stocks stabilize and whether U.S. Treasury volatility declines will become key indicators for assessing market direction. Currently, U.S. equities face two possible scenarios: either broad-based stocks rebound and catch up to large tech stocks, or large tech stocks pull back, dragging the index toward the broader market’s weaker performance.