Goldman Sachs: The degree of differentiation among individual stocks in the U.S. stock market is extremely high

Goldman Sachs strategists stated that although the S&P 500 index is nearing historical highs, the degree of divergence among the index constituents is "extremely high," with the median stock 12% below its 52-week high.

Led by David Kostin, the team noted that investors are leaning towards certain themes and sectors, such as artificial intelligence, large-cap stocks, and industrial stocks, while avoiding small-cap stocks and most defensive stocks.

The three-month return dispersion of the S&P 500 index has surged to 36 percentage points, placing it in the 82nd percentile over the past 30 years.

Among the 11 sectors, 9 sectors also exhibit a level of dispersion above the historical 70th percentile.

They pointed out that the top 20% of stocks in the S&P 500 index, in terms of quality, have a price-to-earnings ratio that is 57% higher than that of the lowest quality stocks, with this valuation gap being in the 94th percentile of data since 1995.

The strategists wrote in a report: "If the economic and earnings growth outlook proves to be more resilient than feared, investors should be prepared for a potential sharp rotation into lower-quality stocks."