On November 6th, KobeissiLetter issued a market analysis indicating that we are currently observing extreme divergence in the U.S. stock market. The average stock correlation of the S&P 500 Index over a period of 3 months has dropped to 0.13, approaching its lowest level since 2018. This indicator is employed to measure the relative movement of each constituent stock of the S&P 500 Index with respect to the index. This implies that the movements of the majority of stocks are independent rather than following the broader market index. In contrast, during the market crash in April, the average stock correlation was approximately 0.50. In summary, the U.S. stock market has become highly fragmented, with a few large-cap tech companies driving the majority of the gains. Most stocks have not participated in this rally, presenting a situation where they decline together but do not rise together.
