The stock market is anything but normal right now — and these charts show it
A simple glance at headline indices suggests a calm, healthy bull market. Look closer and the picture is far from ordinary. Leadership is unusually narrow, volatility behaves like a paradox, the traditional stock–bond relationship has shifted, liquidity is thinner, and dispersion under the surface is doing the heavy lifting. In other words, the mechanics carrying indexes higher (or lower) aren’t the mechanics most investors were trained to expect.
Below is a guide to the key charts that capture this “not normal” market. Even if you cannot see them here, each is straightforward to recreate, monitor, and act on.
What “normal” used to look like
– Broad participation: Index gains accompanied by most constituents rising.
– Diversified leadership: Sector and style rotations without extreme concentration.
– Negative stock–bond correlation: Bonds buffering equity drawdowns.
– Options as insurance: Skew and tails priced sensibly, volumes dominated by longer-tenor contracts.
– Liquidity adequate: Decent market depth, modest intraday air pockets.
The charts that show how abnormal things have become
1) Concentration at or near modern extremes
– What to plot: The combined weight of the largest 5–7 stocks in a major index, and the performance spread between the cap‑weighted and equal‑weighted versions of that index.
– What you’ll see: The biggest names command an outsized share of index returns, with cap‑weighted indices far outpacing equal‑weighted peers in recent years.
– Why it matters: Portfolio “diversification” can be an illusion if one or two themes dominate outcomes.
2) Weak breadth under strong indexes
– What to plot: Percentage of index members above their 200‑day moving average, the advance–decline line, and the share of constituents making new highs versus the index itself.
– What you’ll see: The index near highs while many constituents lag; breadth surges often fade quickly.
– Why it matters: Narrow rallies are fragile; they rely on a few leaders not stumbling.
3) The volatility paradox: quiet surface, stormy tails
– What to plot: Realized 20‑day index volatility versus implied volatility (VIX), the VVIX (vol of vol), and S&P 500 skew; add the share of options volume from same‑day/0DTE trades.
– What you’ll see: Realized vol can look subdued even as tail pricing and vol-of-vol remain elevated; ultra‑short‑dated options dominate flows and whip intraday markets.
– Why it matters: Hedging is pricier than the calm surface suggests, and intraday liquidity can vanish fast.
4) Stocks and bonds moving together
– What to plot: Rolling 1–3 year correlation between a broad equity index and long-duration Treasuries.
– What you’ll see: A persistent positive correlation, unlike the familiar negative relationship of the 2000s–2010s.
– Why it matters: The 60/40 playbook hedges less effectively when inflation and policy uncertainty drive both assets.
5) Real yields versus equity multiples
– What to plot: 10‑year TIPS yield against forward price/earnings for growth-heavy indices (e.g., Nasdaq‑100).
– What you’ll see: Periods where rising real yields don’t compress multiples as much as models predict.
– Why it matters: Intangible‑heavy “long duration” equities sometimes decouple from rate math, often due to dominant narratives like AI—until they don’t.
6) Index calm, single‑stock turbulence
– What to plot: Cross‑sectional dispersion (the spread of individual stock returns) versus index volatility.
– What you’ll see: Elevated dispersion alongside muted index vol, as megacaps dampen the index while smaller names swing wildly.
– Why it matters: Stock pickers face bigger risks and opportunities than index investors might infer.
7) Small caps and cyclicals left behind
– What to plot: Russell 2000 relative performance versus the S&P 500; overlay credit spreads or effective borrowing costs for sub‑IG issuers.
– What you’ll see: Prolonged underperformance for small caps, tightly linked to financing conditions.
– Why it matters: Parts of the economy most sensitive to credit are priced for a tougher world than headline GDP implies.
8) Thin liquidity and shallower books
– What to plot: Top‑of‑book depth for S&P futures or major ETFs, average gap risk around macro releases, and price impact per $10 million notional traded.
– What you’ll see: Market depth below pre‑2020 norms and more pronounced intraday air pockets.
– Why it matters: Execution risk is higher; stops and hedges can slip in fast markets.
9) Buybacks as the marginal bid
– What to plot: Net corporate equity retirements (buybacks minus issuance) versus fund/ETF flows.
– What you’ll see: Corporates remain a dominant, price‑insensitive source of demand, even as traditional active flows are flat or negative at times.
– Why it matters: The “why” behind rallies matters; buyback-supported markets can be strong yet brittle if cash flows weaken.
10) The US–rest-of-world valuation gap
– What to plot: Price/book or CAPE for US large caps versus developed ex‑US; add local‑currency and USD total returns.
– What you’ll see: A wide and persistent US premium, reinforced by currency strength and sector mix.
– Why it matters: Mean reversion is a risk, but sector composition and profitability differences complicate simple “cheap versus expensive” bets.
How to use these charts, practically
– Diversify beyond cap‑weight: Blend equal‑weight, factor sleeves, and international to reduce single‑theme risk.
– Hedge the right risk: If tails are overpriced but intraday swings are your problem, consider dynamic overlays or collars rather than blunt VIX calls.
– Mind liquidity when sizing: Break orders, use limit logic, and avoid known data “air pockets.”
– Don’t rely on bonds alone for ballast: Explore ladders, TIPS, managed futures, or defensive equity to handle positive stock–bond correlation.
– Respect dispersion: If you stock pick, manage gross and net exposure actively; if you index, accept that the “market” is concentrated and plan accordingly.
– Separate story from cash flow: For thematic winners, track free cash flow yield and reinvestment returns to validate multiples in a higher‑rate world.
How to recreate the visuals
– Breadth and concentration: S&P Dow Jones Indices, FactSet, Bloomberg; equal‑weight vs cap‑weight series are widely published.
– Volatility and options structure: CBOE for VIX, VVIX, skew, and 0DTE shares; OCC for options volumes.
– Correlations and yields: FRED for Treasury, TIPS, and total return index data; compute rolling correlations in a spreadsheet.
– Liquidity and depth: Exchange market data providers or broker analytics for order book depth and price impact.
– Global valuations: MSCI, FTSE Russell, and Shiller datasets for CAPE.
A final word
Markets don’t have to “break” to be abnormal. They can look placid while risk migrates into hidden places: concentration, liquidity, the tails, and correlations you thought you understood. Watching these charts won’t predict the next move, but they will tell you which assumptions no longer hold—and where your portfolio is actually taking risk.
