Guidance for the current quarter. All right, it's time for the big picture. Welcome back to Morning Trade Live. We've got a great guest. We've got Kevin Gordon, head of macro research and strategy for Schwab Center for Financial Research. First off, Kevin, good morning to you. It's been a while, my friend. Good to catch up. I want to get into this duck market as you're calling it. One, because I love the visual, but I want to hear you explain this to our viewers. I think this is great.
Yeah. I mean, it's essentially what you've seen over the past couple of months. And you were, you know, talking about this with your prior guest before I joined, just the idea that the cap-weighted S&P 500 hasn't really done much over the past couple of months, which gives an illusion that there is some sort of calm, at least on the surface. But if you look underneath, you know, there's been a ton of carnage. And most recently, probably, you know, everybody doesn't need me to remind them, but a lot of it has been focused and concentrated in the megacap trade, particularly within semiconductors. And if you look at particularly the momentum factor, high-beta momentum, you know, the current drawdown is almost 45%, which is almost on par with what you had in 2021 when you were seeing a pretty big, you know, breakdown before we entered the bear market in '22. Breakdown in momentum, but the sort of just churn that you're seeing in that. And at the same time, the S&P 500 is largely unchanged in that period, just sort of gives you an idea of how aggressive some of these rotations under the surface have been.
But, you know, I think to the point of a stronger economy and at least a stronger economic message, I think the fact that you've seen these other areas of the market hold up, be it small caps or financials or, you know, even health care to some extent, the fact that the broader market hasn't broken down is still a good signal.
You know, in the long term, Kevin, you and Lisanne have been flagging the concentration risk for years. We've been talking about it on the network for a long time as well. And without new money coming in, this broadening has been net negative to the cap-weighted indices, as you know many thought it might be, as the rotation out of some of those, you know, really concentrated liquidity sponges and momentum names has been quite painful for this market to go back to highs. Do we need to go back to the concentrated market, or do there just need to be new sources of money coming into the market that we're just not seeing over the last couple of months?
Well, it depends on how you define concentration. I mean, I think if you're thinking about it in market cap terms, so the, you know, top ten companies in the S&P 500 representing 40%, you know, and change of market cap, if you're looking for that number, you know, if you're anti-concentration and you're looking for that number to go down over time, I mean, you certainly want that to be a slow process. If it's a quick process, then, you know, you've got a pretty aggressive bear market that has to happen for that to be the case. Our kind of thinking about it and how we look at it is in performance terms. So, you know, how many companies are outperforming the index and what does that overall breadth look like. And so far, you know, that recovery has been, I would say, pretty strong over the past several months. And to me, one of the more sort of gold-standard indicators for breadth in the market is the share of companies that are above their 200-day moving average. And that's still relatively healthy. It's gone up in the time frame that the semiconductors have gone into their own, you know, severe correction. So I think that's a better way to sort of think about it. And we think that's a better way to think about, you know, breadth and concentration, not necessarily in market cap terms, because, you know, just the growth in these megacaps over the past decade, call it, it's hard to reverse that. And you don't necessarily want that to happen, you know, in a short time frame. Otherwise it could be, you know, could sort of set you up for a pretty ugly index scenario.
