Four in Ten Stocks in Your ETF Are Down. So Who’s Making Money?
S&P 500 is up by tens of percentage points this year compared with the average stock in it. Bond king Gundlach talks about a hollow tree. But the data show something missing from his warning: the narrow market is only six weeks old, and the first branch has already snapped.
Key points
More than 200 of the 500 companies are down this year, while the index is reporting double-digit gains
Jeffrey Gundlach compared the U.S. market to a hollow tree and advised waiting for the first branch to fall
The shift to a narrow market has an exact date and is linked to a Fed move nobody expected
Data going back to 1929 show what happened to index returns over the following five years after the narrowest periods
Two halves of your index ETF now need exactly opposite conditions to rise
Green numbers that lie
Open your investment app and see that your S&P 500 ETF has gained around 12% this year. The index closed at 7 676,77 points on October 26, just under 2% below its record of 7 818,93 on October 6. It looks like a strong year. But beneath the surface, the market looks completely different.
A Reuters analysis on October 12 found that more than 200 of the 500 companies are down this year, a quarter of the index is losing 11% or more, and the median stock has gained only about 4%. At the time, the index was up 14%, with technology accounting for more than 10 percentage points of that gain. Nvidia $NVDA alone contributed nearly two points. The 10 largest companies make up roughly 39% of the index.
Why is the index rising when most of its constituents aren’t making money? Because the S&P 500 isn’t a vote where every company gets one vote. It’s a shareholder meeting where the largest shareholder holds 40% of the votes. When the 10 biggest companies agree, the other 490 can vote however they like, and the result won’t change. That’s exactly what Jeffrey Gundlach, head of DoubleLine Capital, means when he talks about a hollow tree.
There’s a lot of rot in the S&P 500, but you can’t see it. You have to wait for a branch to fall to find out that the market is hollow—just like that tree.
Jeffrey Gundlach, CEO and Chief Investment Officer of DoubleLine Capital, webcast with David Rosenberg, October 1, 2026
The narrow market is only six weeks old
This is where the part of the story that Gundlach’s warning leaves out begins. For most of 2026, the average stock—not a handful of giants—was winning. According to Opening Bell Daily data, the equal-weight version of the index, where every company has the same 0,2% weighting, outperformed the market-cap-weighted index on 158 of 202 trading days, by as much as 6,4 percentage points at the end of February. The small-cap Russell 2000 index gained roughly 22% in the first half of the year, its strongest start to a year since 1991.
The shift has an exact date: September 16.