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It might not feel like it, but the average Canadian stock is actually outperforming its U.S. counterpart so far in 2020.

The widespread impression of U.S. dominance in pandemic-era markets is largely rooted in the stratospheric rise of a few technology and internet giants.

But for the vast majority of publicly traded U.S. companies, 2020 has been nowhere near as favourable. The average S&P 500 index company is down by roughly 8 per cent year to date.

In Canada, on the other hand, the overall market returns have been much more evenly spread out. The average stock in the S&P/TSX Composite Index, regardless of size, is down by just less than 5 per cent.

“It’s a healthier rally when you’ve got breadth, and you’ve got a lot of up-and-comers that are performing well,” said Jason Mann, chief investment officer at Toronto-based EdgeHill Partners.

“It’s a sign of a less-healthy market when the gains are heavily concentrated in such a narrow group.”

That level of concentration can translate into magnified losses when the market pulls back or corrects, which is exactly what has transpired through a volatile month of September.

Since peaking on Sept. 2, the S&P 500 Index has dropped by 8.4 per cent. That erases only a small portion of the U.S. market’s explosive gains since the pandemic-fuelled crash ended in late March, but is still a substantial downward move in just 11 trading sessions.

The dip in the S&P/TSX Composite Index over that time is at just 4.3 per cent – evidence that greater market breadth provides a certain amount of insulation when the climate shifts.

Five years ago, the five largest companies in the S&P 500 accounted for about 10 per cent of the total market capitalization of the index. By early September, that weighting rose to 25 per cent.

At that point, those five stocks – Apple Inc., Microsoft Corp., Amazon.com Inc., Alphabet Inc. and Facebook Inc. – were collectively up by close to 50 per cent on the year, and commanded a total market capitalization of US$7.8-trillion.

The remaining 500 companies in the index, on the other hand, were in negative territory.

This extreme divergence is disguised by the way most stock market indexes are constructed. The most widely followed indexes, such as the S&P 500 and the S&P/TSX Composite Index are weighted by market capitalization, meaning the biggest companies have much more influence on the direction and magnitude of index moves than do the smallest listings.

Equal-weight indexes, on the other hand, treat all companies in the index the same, giving a clearer picture of how the average stock is doing.

Under normal circumstances, the two don’t veer too far from each other. But the pandemic economy is unique, having made a handful of enormous companies the overwhelming beneficiaries of the economic resurgence, while dispensing malaise to the masses.

So while Big Tech has catapulted the S&P 500 to record highs as recently as two weeks ago, the average stock in the index is still well below where it started the year.

Only three times in the past 30 years has the U.S. stock market diverged to a similar extent – in 1990, 1998-99 and 2008 according to Jeffrey Kleintop, the chief global investment strategist at Charles Schwab & Co. Inc.

“What followed those periods? A closure of the gap as the S&P 500 cap-weighted index retreated,” Mr. Kleintop wrote in a note.

Incidentally, the level of concentration the U.S. stock market is now exhibiting has long been a hallmark of the Canadian stock market.

The outsized presence of financial and resource industries on the Toronto Stock Exchange has traditionally dwarfed the more thinly populated sectors, such as technology, consumer and health care.

That particular gap has narrowed, however, as the energy sector’s fortunes have reversed, while IT and industrials have claimed a growing share of the overall market.

In other words, the Canadian stock market is becoming more diversified at the same time as the U.S. market is moving in the other direction.

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