Hi, everyone. I'm Liz Ann Sonders, and this is the August Market Snapshot. Happy summer to all of you.
[Table for "Drawdowns … above and below the surface" showing YTD returns and maximum drawdowns for S&P 500, NASDAQ and Russell 2000 is displayed]
Well, we're more than halfway through 2026, and while headline index returns look pretty solid on the surface, the S&P is up 13%, NASDAQ up 14%, Russell 2000 of small-cap stocks up 23% all year-to-date, but what's happening beneath those numbers tells a much more complex story. So today, let's explore the divergence between index performance and actual market participation, what that means for investors, and where we're seeing real strength.
So let's start with the elephant in the room, drawdowns. Now, while the S&P 500 has seen a maximum intra-year drawdown of only about 9%, the average member within that index has experienced a 24% drawdown from their year-to-date highs. That's a meaningful disparity. The NASDAQ tells a similar tale. The index is up 14%, but individual members on average have had a 42% drawdown from their highs. And this divergence is significant because it reflects a market that is seeing a tremendous amount of leadership rotations and churn under the surface.
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Now, when we look at market breadth indicators, specifically the percentage of S&P 500 members trading above their 200-day moving average, we see something quite telling. As of mid-August 2026, 72% of S&P 500 members are trading above that key technical level, while at 68% for the Russell 2000. The NASDAQ has actually been the laggard, sitting at 49%. Now, for context, this isn't necessarily bearish in absolute terms, but what it indicates is that we're not in a broad all boats rising at the same time kind of move higher.
[High/low chart for "Yield-sensitive sectors lagging re: short-term breadth" for % of S&P 500 members above 50-day and 200-day moving averages is displayed]
Now, at the sector level, the strongest breadth has been among the Energy, Financials, and Healthcare sectors, and bringing up the rear are Utilities. When we look at the percentage of members above the 50-day moving average, what we might call intermediate-term momentum, we see that about two-thirds of the S&Ps sit above that level. That's a reasonable number. And it suggests the intermediate trend is intact. But the disconnect between index performance and individual stock participation means that profit-taking has been selective, and benefits have still been somewhat concentrated, albeit rotational.
Now, as many viewers know, we publish at Schwab sector views, and the sectors right now on which we currently have favorable ratings are Financials, Healthcare, Industrials, and Materials. On the other end of the spectrum, the Real Estate and Consumer Discretionary sectors are our least favored. For more, by the way, on our sector views, check out our monthly Stock Sector Outlook under the Learn tab on schwab.com.
[High/low chart and table for "Fewer members outperforming index" for % of S&P 500 members outperforming S&P 500 Index and S&P 500 Equal Weighted Index over the past 1m, 2m, 3m, 4m, 5m, 6m and 1y is displayed]
Moving on, when we measure what percentage of S&P 500 members are actually outperforming the index itself, the numbers become a bit more striking. So over the past month, about 45% of S&P 500 members are outperforming the index itself. However, you can see in the chart that it wasn't long ago that that was more than 65%, much broader participation relative to the anemic 13% over the past year. In other words, there has been a recent slight fade in the percentage of stocks outperforming the index itself over the trailing one-month period. And that does provide a little bit of a dent in what had been a pretty powerful broadening narrative. And the sector data reinforces this narrative.
[High/low chart for "Energy shining" for % of S&P 500 sectors with 4-week and 52-week highs is displayed]
Energy stocks show 24% of members making four-week highs; 14% making 52-week highs. That's relatively strong participation. Financials show similar strength. But notice Real Estate and Consumer Staples, each with 0% of members at four-week new highs or 52-week new highs. Even within Technology, only 19% of members are making four-week highs, despite the index's outsized gains. That tells you that concentration is still a force in the markets. It's just been amid rotation.
[High/low chart and table for "Neural9's wide divergences" for Neural9's YTD performance, S&P 500 performance and contribution ranks and NASDAQ performance rank is displayed]
Let's move now to the individual stock level to some degree. Earlier this year, I added two stocks to what has long been the popular Mag7 grouping, and I've been calling it the Neural9. And it includes star performer Micron, as well as Broadcom, added to the original Mag7 seven. Now, among that group of nine, Micron leads with a year-to-date gain of nearly 220%. The next best performers among the group are Broadcom and NVIDIA, each up a much lesser 20%. But here's where the divergence really crystallizes. Beyond the semiconductor universe, performance deteriorates substantially. Microsoft is barely up, all the way down to Meta and Tesla, each with double-digit year-to-date losses. One of the morals of this story is that you can't look at groups of stocks as monoliths necessarily anymore.
I also want to point out the differential between the S&P 500's performance and contribution ranks' columns. So in the case of the latter, let's look at the contribution ranks. Contribution rank takes into consideration not just price performance, but the market capitalization of each company. So you're multiplying them together, price performance and size, and that gives you the contribution. And an example of how these can diverge might be NVIDIA, which is the number two ranked stock in terms of contribution to S&P 500 returns this year, but its performance rank is 160th, again, the differential being a function of the massive size of NVIDIA. Now, at the bottom of the list are Meta and Tesla, with their weak price performance combined with their large cap sizes putting them dead last from a contribution standpoint.
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Here's what I'd emphasize as we look forward. Strong index returns can mask internal churn, which we have been seeing. The fact that 87% of financials, 83% of healthcare, 81% of energy stocks are above their 200-day moving averages compared to just 72% for the S&P 500 overall, that suggests that the underlying strength might be found outside just the mega-cap technology space.
For investors, all this wraps together and represents a critical moment for rebalancing discipline and diversification across the equity asset class, specifically at the sector level. The market's message is becoming increasingly clear. You cannot assume that broad index exposure alone is capturing market opportunity. Winners and losers are diverging more sharply, and we believe the divergence may be a bit structural, not only cyclical. That's been the real story so far in 2026, and there will be lots more on that to come.
Thanks, as always, for tuning in, and I'll be back next month.
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