Opinion: The stock market is in a bull market? What bull market?

CNN — OK, with journalistic license — even calls it “official.”

The reason for this outbreak of good cheer is that last week the S&P 500
SPX,
+0.93%
hit a level 20% above last October’s lows. And according to these “official” (well, widely followed) rules, that makes it a bull market. Right?

Phooey.

Never mind that these simplistic rules and measures are ridiculous. (Financial economics is better compared to astrology than astronomy.)

Read: What the S&P 500’s new bull market tells us about what’s to come

As we already know, most of the action this year has been in the so-called Magnificent Seven megacap names: Apple
AAPL,
+1.56%,
Microsoft
MSFT,
+1.55%,
AI chip company NVIDIA
NVDA,
+1.84%,
Amazon
AMZN,
+2.54%,
“Meta” (Facebook)
META,
+2.30%,
“Alphabet” (Google)
GOOG,
+1.20%,
and Tesla
TSLA,
+2.22%.
 

But most of the S&P 500 isn’t in a bull market. Far from it.

Whirlpool
WHR,
+1.62%,
for example, is no higher now than it was last October. The same is true for such giant bellwethers as Southwest Airlines
LUV,
+2.74%,
UnitedHealth
UNH,
-0.21%,
Chevron
CVX,
-0.96%,
Domino’s Pizza
DPZ,
+1.27%,
Walgreens Boots Alliance
WBA,
+0.70%
and Johnson & Johnson
JNJ,
-0.07%.

Read: It’s a ‘bull market’ for stocks. Here’s what that means.

Picking pretty much randomly from a long list of household names, Bank of America
BAC,
-0.48%
is even lower than it was at last fall’s “market lows.” As is Disney
DIS,
+1.32%.
And Campbell Soup
CPB,
-0.15%.
And Kellogg
K,
-2.62%.
And Bristol-Myers Squibb
BMY,
-0.06%,
3M
MMM,
+1.36%,
Hasbro
HAS,
+2.47%,
Allstate
ALL,
+0.35%,
Keurig Dr Pepper
KDP,
-0.26%
and Estée Lauder
EL,
+1.76%.

CVS Health
CVS,
-0.36%
i s nearly a fifth lower than it was at the October “lows.” Boston Properties
BXP,
+0.50%,
the giant owner of commercial real estate from coast to coast, is down 25%. Just since then.

And so it goes. About a quarter of the stocks in the index are still lower today than they were at the “low,” FactSet data show. This is some bull market.

The average S&P 500 stock—as measured for example by the equal weight S&P 500 index—is up a more modest 14%, not 20%. The median stock of the top 500, according to FactSet, is up 12%.

And about half of all the S&P 500’s gains have come from just the Magnificent Seven stocks.

This is a narrow, top-heavy bull market. A few names are flying high. Most are trailing behind. Many have gone nowhere.

OK, so that’s true to some extent in all markets, including all bull markets. Not everything goes up. Not everything goes up at the same rate. Far from it.

But it’s hard to argue for a general move higher in prices, and rising risk appetite across the board, when so many are left out. Can it really be a rising tide if it lifts only a few boats?

The iShares MSCI USA Equal Weight ETF
EUSA,
+0.66%,
which invests equally in the top 600 or so companies on the stock market, is still down 15% from its late 2021 peak. It is still below the levels it hit in late January this year.

As financial adviser and journalist John Coumarianos pointed out last week, the headline S&P 500 index, which reflects the disproportionate weight of the biggest companies, has just had the best five-month run, when measured against its equal weight version, in at least 20 years.

This matters to investors because over time the pair tends to revert to the mean, meaning that what goes up comes down (and vice versa). Periods when the headline, cap-weighted index has beaten the equal-weight index are usually followed by periods when the reverse happens.

“After peaks in concentration—such as the aftermath of the technology bubble—the S&P 500 Equal Weight Index has typically outperformed its cap-weighted counterpart,” write Anu Ganti and Craig Lazzara, directors at S&P Dow Jones Indices.

If you’re a normal person investing for the long-term you can probably just ignore the whole debate.

Meanwhile, OK, maybe we’re in a new bull market: But there are reasons to be skeptical.