Today’s chart of the day was shared on Twitter by Renaissance Macro (@RenMacLLC). It’s a chart of an equally-weighted Consumer Discretionary index. The cap-weighted version of Consumer Discretionary, $XLY closed at an all-time high today, while the equally weighted version is far from reaching new highs. This shows us that it’s only a handful of the largest Consumer Discretionary names that are doing most of the heavy lifting. As they note, five stocks account for 50% of $XLY (Amazon, Home Depot, McDonald’s, Nike, and Starbucks). An equally-weighted version provides a less “distorted” view of the sector in this particular case, because of how skewed the cap-weighted version is to large-cap stocks like Amazon. The purpose of comparing cap-weighted to an equally weighted version of the same group is to gauge the breadth of participation from the individual components.
