Is the Market’s Beta Always 1?
In my last post, I talked about how professional managers are seeing their portfolios “not following the script.”
Last night, a friend, a great market scholar, pulled a chart out of his hat that sums it up perfectly. Thanks for sharing it.
Historical correlations and betas are no longer reflecting returns (or have broken temporarily) as they used to, due to heavy positioning in just a few stocks. This is not new. More than a month ago, another top-tier research house already wrote about this phenomenon.
Here are some public links on the topic (even though I don’t like giving “free” traffic when their research is behind paywalls):
A. LinkedIn post by Farris Shuggi
B. Threads post or my post about it (https://x.com/MarioRandholm/status/2072644543686590813?s=20)
Two interesting public analyses from different sources:
- Evolution of the percentage of S&P 500 stocks with negative beta over the last 6 months (data up to May 18, 2026).
→ A level of 14%, something not seen since the bursting of the dot-com bubble. - An in-depth analysis of concentration in the Magnificent 7: they no longer move as a single block. Their internal correlation has fallen to 10-year lows, while their weight in the benchmark remains enormous.
THIS IS WHY THEY SAY / IT SEEMS LIKE THE MARKET IS BREAKING
(Great chart, they put real work into it) the one from Farris Shuggi Post includes 1999
This is creating a disconnection worth noting:
- Benchmarks (dominated by mega-caps) can distort expected betas…
- The real behavior of most stocks raises risks for asset optimization and/or asset allocation.
- Active managers’ performance portfolios now need to be explained with second derivatives. They were saying… how much risk is there in the index vs. our beta-replicated portfolios with 30 assets vs. 1000.
If I may allow myself a bit of academic flexibility, I want to highlight the KEY POINT: it is no longer true that “the market’s beta is 1” — especially considering that you never actually gave your money to “the market.”
Several of the big names are showing betas significantly below 1 and very differentiated behaviors among themselves (Microsoft is a clear recent example). The concentration is not the same as what we saw in the bubble… but it is changing the way we must manage risk and build portfolios.
Are you seeing the same thing in your portfolios? Comments are open.
If you want to discuss it privately, write to me.
Best regards,
Mario
