Almost half of the stocks in the S&P 500 are moving in the opposite direction of the index with negative betas, and this unusual divergence is becoming increasingly difficult to overlook.

According to a recent report from Goldman Sachs, about 45% of S&P 500 constituents have a three-month beta that is negative. This figure closely aligns with media findings: based on weekly returns, nearly 40% of S&P 500 constituents have a negative three-month beta relative to the index, while 17% have a negative one-year beta. Beta measures how a stock moves relative to the rest of the market. A negative beta means that during the measurement period, the individual stock's returns moved in the opposite direction of the S&P 500.

The surge in negative-beta stocks coincides with other abnormal market signals. The S&P 500 rose 1.5% last Monday. On the same day, 30 stocks hit 52-week lows while only 7 reached new highs. According to Jason Goepfert, founder of SentimenTrader, the last time the S&P 500 rose at least 1% while within 1% of a 52-week high and new lows outnumbered new highs was in December 1999, just before the peak of the dot-com bubble. These two indicators suggest that even with severe divergence among individual stocks, the market index can remain at or near record levels.

Growing Divergence

Adam Turnquist, chief technical strategist at LPL Financial, said this massive gap largely reflects how concentrated the S&P 500 has become. Mega-cap technology companies carry outsized weight in the benchmark index, meaning strong performance from a handful of stocks can drive the index higher even as many others move in the opposite direction. "You only need a few mega-cap names to perform well; many of the smaller-weighted stocks don't need to do well," Turnquist said, noting that correlations among S&P 500 constituents are unusually low.

Bradley Krom, director of investment strategy at WisdomTree, said the same dynamic explains why the broader index looks relatively calm even when individual stocks swing sharply. "Beta is a function of correlation and volatility," Krom said. When stocks experience large moves at different times for different reasons, those movements can largely offset each other at the index level.

In July, Alliance Bernstein used one-year rolling returns to find that the proportion of U.S. stocks showing negative beta reached unprecedented levels as AI winners drove the market higher. Semiconductor manufacturers, hardware companies and other AI infrastructure beneficiaries gained from massive capital expenditures, while companies outside the AI trade struggled to keep pace. "But a narrow market can also distort the signal investors get from index returns. When a handful of companies dominate performance, many financially sound businesses may lag or even decline simply because they are not directly tied to the most powerful market narrative," wrote Kurt Feuerman, chief investment officer of Alliance Bernstein Select U.S. Equity Portfolios.

Negative Energy

Energy stocks with negative betas are being driven by different forces. "The other part of the other story is energy. This has been very clear this year: oil prices rise, energy stocks rise, and then the rest of the market falls," Turnquist said, arguing that energy, like more defensive sectors, is an important part of the negative-beta story.

Earlier this month, Evercore ISI used six-month metrics to identify 115 S&P 500 constituents with negative betas, with the list skewing toward energy, utilities and consumer staples. The investment bank called the energy sector a "synthetic S&P 500 put option" because of how it responds to geopolitical pressure.

Turnquist believes the number of negative-beta stocks could decline if market leadership broadens. But he expects divergence to remain elevated as investors stay selective about AI spending beneficiaries and seek returns there. WisdomTree's Krom expects the recent extreme readings to eventually mean-revert. He said similar peaks occurred around the 1999-2000 dot-com bubble, when market concentration and large moves in a narrow group of stocks also triggered unusual divergence.

Turnquist pushed back against comparisons between today and the internet era, saying today's leading tech companies are more mature businesses with stable revenue and products. Krom agreed. He said the components driving returns no longer have the same historical relationships as in the past. "This is not the same market environment as 2000," Krom said. The negative beta seen today "ultimately comes down to market concentration."