Which sectors are driving market performance, and could dispersion levels signal potential opportunities? Explore global markets, sectors, and yields across the dividend spectrum in this edition of The Market Measure.
Meet The Market Measure - a new video series providing fresh perspectives on markets through the lens of indices. Each month, get access to insights across geographies, asset classes and investment strategies.
To make sure you never miss an episode, sign up for content alerts.
[TRANSCRIPT]
Benedek Vörös:
Hello, I'm Ben Vörös and welcome to The Market Measure.
Most major equity markets started 2025 on the front foot and are in the black year-to-date as of the beginning of February. This chart shows index performances in U.S. dollars as of February 4th. In the U.S., The Dow stands out with a gain of 5%, while the S&P 500, as well as mid and small caps, are up 3%. Some international equity markets have been doing even better than U.S. indices. The S&P Europe 350 is up 6%, while Latin America, last year's laggard, staged a spectacular rebound in 2025, with the S&P Latin America 40 up 11%. Japan showed relative weakness with the local S&P/TOPIX 150 marginally down so far this year. Major fixed income indices are up around 1% across the board year-to-date, and commodities are also off to a strong start, with the broad S&P GSCI Index up 4% and gold up 8%.
The Q4 2024 U.S. corporate earnings season is under way, with over a third of S&P 500 companies already announcing results. So far, 78% of companies that reported earnings beat analysts' estimates, which is not too far from the 10-year average beat rate of 74%, but there are large sector divergences under the hood. While 95% of Financials and 91% of Information Technology firms reported better results than expected, just 55% of companies in the Materials sector did so.
Against this backdrop, it may be surprising that Information Technology is down for the year and is the only S&P 500 sector in the red, while Communication Services and Financials, the other two among the three sectors with the highest earnings beat rates, are strongly outperforming the S&P 500 so far in 2025. Information Technology's negative performance was driven by just two stocks, with Nvidia and Apple responsible for the index's entire drop, while 42 out of the sector's 69 constituents are actually up year-to-date.
While S&P 500 index volatility has been relatively muted in recent months, there has been a large dispersion in different segments' performances under the hood. Already in December last year, there was a significant repricing among S&P 500 sectors, even as index volatility remained low. While the U.S. blue-chip benchmark was little changed, 15% separated best-performing Communication Services, up 4%, from laggard Energy, down 11%.
High levels of dispersion continued into the new year with S&P 500 single-day dispersion hitting the second highest level of the past decade and a half in late January, only slightly below its level on 9 November 2020, the day when Biden was declared as the winner of the U.S. elections and the COVID vaccine was announced.
And it's not just backward-looking realized measures of dispersion that shot up. The Cboe S&P 500 Dispersion Index, or DSPX for short, which measures market expectations for the standard deviation among the annualized performance of S&P 500 constituents in the next 30 days, jumped to 37 on January 27, a new record for the live history of the index.
Around half of the big rise in the DSPX was due to Nvidia, which plunged 17% on the back of fears that demand for the firm's chips may wane following the release of a new, surprisingly efficient AI model.
After a narrow leadership last year, we see a broadening of the equity rally this year, which is reflected in the proportion of stocks that did better than the S&P 500. While last year just 28% of stocks outperformed the index, year-to-date, a majority of stocks outperformed.
What that means is that the dominance of the Magnificent 7 in driving index performance, as observed in 2024, has significantly diminished, and the S&P 500 is no longer reliant on the largest stocks to drive performance. In fact, the S&P 500 Top 10 Index, which measures the performance of the S&P 500's 10 largest constituents, is flat so far this year, while the S&P 500 Equal Weight is up 3%.
Many S&P 500 firms have a long history of initiating or increasing dividends. Last year, 342 firms increased dividends, while 8 companies initiated one, including Alphabet, Meta and Salesforce. As a result, the absolute dollar amount of dividends by S&P 500 constituents hit its 13th consecutive annual record in 2024, with over USD 600 billion paid out, up 6.4% on 2023.
If firms keep raising their dividends year after year, even an expensive-looking price may turn out to be justified. Many S&P 500 constituents have a long record of increasing dividends, with an average 323 companies increasing annual dividends over the past 20 years. Even during COVID in 2020 and the great financial crisis in 2009, 287 and 151 S&P 500 members increased payouts.
Market participants with a preference for higher yield than that of the S&P 500 may adopt strategies focused on dividend-paying stocks. This chart shows the current yield of selected S&P dividend-oriented benchmarks, all of which have a much higher yield than the S&P 500, with the S&P 500 Low Volatility High Dividend and S&P 500 High Dividend even matching the yield on 10-year U.S. Treasury bonds.
Let's zoom in on two members of the index family, the S&P 500 Dividend Aristocrats and the S&P High Yield Dividend Aristocrats. Members of the former must be constituents of the S&P 500 and must have increased their dividends for a minimum of 25 consecutive years. The S&P High Yield Dividend Aristocrats consists of S&P Composite 1500 constituents that have increased dividends for at least 20 years. While these are the minimum requirements, some index members have a much longer record of dividend increases. As this chart shows, 28 S&P 500 Dividend Aristocrats constituents and 38 S&P High Yield Dividend Aristocrats constituents have increased their dividends for half a century or more.
At S&P Dow Jones Indices, we measure the markets. I'm Ben Vörös, and this was The Market Measure.
