In investing, it's always tempting to stick with what works. But in this case, history shows that investors might want to consider betting on a reversion to the mean, according to Jason Goepfert, chief research analyst and founder of SentimenTrader.
After crunching the numbers, Goepfert found that following months where the equal-weighted index struggled relative to its capitalization-weighted peer, the roles typically reversed over the next year.
"For a while now, it has been tempting to assume that the average stock will make a comeback versus the top-heavy version of the index, and these big monthly declines add to that temptation," Goepfert said.
As further proof of how much the average stock has lagged, Goepfert pointed out that as of Monday's close, 10 consecutive sessions have passed with no more than 1% of S&P 500 stocks hitting a 52-week high.