SPX vs. QQQ, also equal weight

I was suspicious of the 2020-2021 bubble because so much of the S&P500 growth was concentrated in a few large companies. That drove up the value of cap-weighted S&P 500 index funds (SPX) but I felt that this was vulnerable since the highest-value companies seemed overvalued to me. As mungofitch has pointed out, funds that are based on equal weights rather than cap-weighted are less vulnerable to a single company’s stock value decline. RSP is an equal-weight S&P 500 fund.

I was especially suspicious of the NASDAQ index because so many of the companies are so-called “high growth” tech firms which are dependent on historically low interest rates. QQQ is a cap-weighted fund which is vulnerable to sudden collapse of the highest-valued companies. QQQE, an equal-weighted NASDAQ 100 fund, is a favorite of mungofitch.

In the attached panels, I compare SPX, RSP, QQQ and QQQE. All of them have been falling for months but their relative movements are illuminating.

SPX:RSP has been dropping as the most overvalued S&P 500 stocks are falling faster than the market overall.

SPX has done much better than QQQ since the beginning of 2022. That was an important trend change. QQQ did much better than SPX in 2020, they were level throughout 2021, then QQQ collapsed in 2022 when the Fed announced its upcoming fed funds hikes.

SPX was relatively better than QQQE beginning in March 2021. Since May 2022, they have been neck-and-neck. The series is noisy so there isn’t a clear trend. RSP is doing worse than QQQE but it’s early to say whether this will continue.

QQQ falling faster than QQQE.


Mungofitch’s work shows that QQQE is less volatile than QQQ and has good long-term returns over the rate of inflation.

All of these are falling knives. I wouldn’t buy any of them until the Fed pauses or begins to drop the fed funds rate…and until the “mungofitch 99 day rule” of new highs is established. The 1970s, which resembed today’s situation of high inflation, had some nasty “bear trap” rallies that failed.

But SPX and QQQE seem like the best bets.