Is it easier to become a stock picker in a stock picker’s market?🕵

A few charts I saw recently had me thinking about the challenge of trading individual stocks to generate above-average returns.

The first chart came from Citadel’s Scott Rubner.

It shows the correlations among S&P 500 stocks, basically the degree to which stocks move together. A high correlation suggests stocks are largely moving in tandem, whereas a low correlation means they are moving independently.

Rubner’s data shows that correlations have fallen to their lowest level in at least 15 years.

Because low correlation means stocks are diverging from the S&P 500 average, this implies there are more opportunities to trade individual stocks in ways that outperform the market. Therefore, it’s a “stock picker’s market.”

But just because there may be more ways to beat the market doesn’t mean it’s easier to do so.

In these low-correlation markets, you can just as well be overweight stocks that underperform the S&P while being underweight stocks that outperform. Either move would have you doing worse than the market average.

Fundstrat’s Hardika Singh recently highlighted some of the S&P’s big outperformers and underperformers behind a relatively modest move in the market averages over the past few weeks. From her Friday note:

Since memory and storage stocks peaked on June 22, the S&P 500 has gained close to 1%. But moves within single stocks have been much more volatile. Micron shares are down 18% over that period, Sandisk has fallen 18%, and Intel has tumbled 20%. Concerns that Big Tech has overbuilt AI infrastructure have dragged down highflying semiconductor stocks.

The reason why the index hasn’t been hurt by that is that those big declines have been canceled out by even bigger gains from other sectors of the market like financials, industrials, and healthcare. For example, Moderna’s stock is up 29%, while Axon Enterprise has added 42% since June 22.

Again, getting these trades wrong means underperforming the market, potentially by a wide margin.

To be fair, many folks are successful at trading such that they outperform the market. But most fail to do so.

Notice in Rubner’s chart that correlations have mostly trended lower over the past 15 years. If lower correlations meant it was becoming easier to trade individual stocks, you would think more actively managed equity funds would be outperforming the market.

However, S&P Dow Jones Indices’ data show that most actively managed large-cap equity funds have underperformed the S&P 500 over the years at a somewhat consistent rate. In fact, 2025 saw active managers’ third-worst performance in the past 15 years.

According to BofA’s US Mutual Fund Performance Update report, just 38% of large-cap active funds have outperformed their Russell benchmarks in the first half of 2026. Low correlation between stocks does not appear to be helping most active managers.

One of the key challenges with picking stocks is that few stocks produce above-average returns for any extended period. And very few generate eye-popping returns, which heavily skew how the market averages are calculated.

So, if you fail to pinpoint and get exposure to some of these few winning names, you’re likely to have disappointing returns.

That brings me to another chart that had me thinking some contrarian thoughts about stock picking.

From FactSet’s John Butters, this chart shows the distribution of analysts’ buy, hold, and sell ratings for individual S&P 500 stocks. Some of you might be surprised, but the vast majority of the analysts’ 12,840 ratings are buy and hold, and very few are sell.

When you consider the historical evidence that shows most stocks tend to perform poorly, you might make a snarky comment about how analysts’ bullish ratings are a disservice to those trading on these calls. And you probably have a good point.

I’ll offer a different view: Buying or holding many different stocks increases the odds that you’ll have exposure to the companies generating the extraordinary returns that lift your entire portfolio’s performance.

In other words, if all these buy and hold ratings get you to build a diversified portfolio of many stocks, then maybe that’s a good thing.

Of course, this assumes the big outperformers in the stock market aren’t lost in those sell ratings.

I’m sure there are some good stock pickers out there who do exceptionally well during periods of low correlation. But that’s different from suggesting that low correlation means more people can become successful stock pickers.

To be clear, I don’t think there’s anything inherently wrong with investing in specific businesses you believe in or stocks you think offer extraordinary value. Your gut instincts and research about certain industries will sometimes be better than the market consensus.

But I’d think twice when you hear phrases like, “It’s a stock picker’s market.” Just because more stocks are diverging from the market average doesn’t necessarily mean it’s easier to pick market-beating stocks.

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Related from TKer:

📈The stock market climbed last week, with the S&P 500 adding 1.2% to end at 7,575.39. The index is now down 0.5% from its June 2 closing high of 7,609.78 and up 10.7% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

💳 Card spending data is holding up. From BofA: “Heading into the summer, consumer spending momentum was very strong, with total credit and debit card spending rising 6.3% year-over-year (YoY) in June – the strongest growth in over four years – according to Bank of America internal card data. With gasoline prices falling, the increase in spending growth is almost entirely a discretionary story.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

⛽️ Gas prices tick up. From AAA: “Gas prices are going up again, as the future of the ceasefire between the U.S. and Iran remains uncertain. The national average for a gallon of regular gasoline went up 5 cents overnight to $3.84 after steadily dropping since late May. Crude oil prices are currently in the $70 per barrel range but could rise if volatility lingers along the Strait of Hormuz. Prices are still lower than they were in the spring when the national average peaked at $4.56 on May 21.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🎈 Inflation expectations heat up. From the New York Fed’s June Survey of Consumer Expectations: “Median inflation expectations at the one-year-ahead horizon increased by 0.2 percentage point to 3.7% in June, the highest level since September 2023. They also increased by 0.2 percentage point to 3.3% at the three-year horizon, the highest level since June 2022. Median expectations at the five-year horizon were unchanged at 3.0%.”

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits declined to 215,000 during the week ending July 4, down from 227,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.814 million during the week ending June 27.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

💼 Jobs were created. According to the BLS’s Employment Situation report, U.S. employers added 57,000 jobs in June. The three-month moving average has declined to 111,000.

Total payroll employment rose to a record 158.98 million jobs in June.

The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — declined to 4.2% in June.

The labor market is in decent shape, but clearly isn’t as hot as it was just a few years ago.

For more on the labor market, read: Things are looking up in the labor market👍

💸 Wage growth is cooling. Average hourly earnings rose by 0.3% month-over-month in June. On a year-over-year basis, June’s wages were up 3.5%.

💰 Job switchers get better pay. According to ADP, annual pay in June for people who changed jobs was up 6.5% from a year ago. For those who stayed at their job, pay was up 4.4%, about what it’s been for the past year.

For more on why policymakers watch wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation 📈

💼 Job openings rose. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.584 million job openings in May, up from 7.585 million in April.

During the month, there were 7.31 million unemployed people — meaning there were 1.04 job openings per unemployed person. This remains one of the most straightforward indicators of labor demand. However, this metric has returned to prepandemic levels.

For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨

👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.71 million people in May. While challenging for the people affected, this figure represents just 1.1% of total employment. This metric remains slightly below prepandemic levels.

For more on layoffs, read: Mathematical context can totally change the story 🧮

Hiring activity remains well above layoff activity. During the month, employers hired 5.17 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — is relatively low, which could be a sign of trouble to come in the labor market.

For more on why this metric matters, read: The hiring situation 🧩

🤔 People are quitting less. In May, 3.07 million workers quit their jobs. This represents 1.9% of the workforce. The rate continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job, workers have fewer outside job opportunities, wage growth is cooling, or productivity will improve as fewer people are entering new, unfamiliar roles.

For more on this dynamic, read: The crummy labor market is yielding a ‘tenure dividend’ for corporations 💰

👎 Consumer vibes improve slightly, but remain in the dumps. The Conference Board’s Consumer Confidence Index climbed 0.6 points in June. From the report: “Consumer confidence inched up in June as falling oil prices in recent weeks provided some relief to consumer inflation fears. Consumer appraisals of current business conditions were slightly more positive compared to last month.”

More from the report: “Among age groups, confidence for consumers under age 35 remained the highest, but confidence for all age groups trended downward on a six-month moving average basis. By income, on a six-month moving average basis, confidence was mixed or little changed across all categories. By generation, confidence fell the most for the Silent Generation but was stable or lower for others on a six-month moving average basis. By political affiliation, confidence among Independents and Democrats rose while Republicans were somewhat less positive on a month-over-month basis.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊 and The economy may not be working for everyone right now, but it’s at least working for stock market investors 🎭

👎 Consumers don’t feel good about the labor market. From The Conference Board: “On net, consumers’ views of the labor market worsened in June. 24.9% of consumers said jobs were “plentiful,” up slightly from 24.8% in May. Conversely, 22.5% of consumers said jobs were “hard to get,” up from 19.8%.”

More from The Conference Board: “On net, consumers’ negative stance about the labor market outlook was largely unchanged in June. 15.2% of consumers expected more jobs to be available, down from 16.6% in May. However, 25.6% anticipated fewer jobs, down from 27.0%.“

For more on the labor market, read: Things are looking up in the labor market👍

🏚 Home sales declined. Sales of previously owned homes fell 2.4% in June to an annualized rate of 4.09 million units. From NAR chief economist Lawrence Yun: “The back-and-forth in monthly home sales activity, driven by mild fluctuations in mortgage rates, shows how sensitive home buyers are to affordability conditions. However, job gains—more than half a million since the beginning of the year—will continue to provide support for the housing market.”

Prices for previously owned homes rose from last month and year-ago levels. From the NAR: “The median existing-home sales price for all housing types in June was $440,600, up 1.8% from one year ago ($432,700) – the 36th consecutive month of year-over-year price increases.”

From Yun: “The median home price has reached an all-time high. Even so, affordability is better than a year ago because wage growth is outpacing home price growth. However, progress on long-term housing affordability could be hampered if inventory growth continues to stall. Without consistent gains in inventory, home prices can accelerate. It is critical to introduce more supply to the market to widen the opportunity for homeownership.”

🏠 Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.49%, up from 6.43% last week. From Freddie Mac: “Mortgage rates have not changed much recently, but economic growth and housing affordability continue to improve for homebuyers as they shop for homes in today’s market.“

As of Q1, there were 147.6 million housing units in the U.S., of which 86.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🔨 Construction spending ticked higher. Construction spending increased 0.1% to an annual rate of $2.21 trillion in May.

📋 Manufacturing activity surveys signal growth, but also challenges. From S&P Global’s June U.S. Manufacturing PMI: “US manufacturers reported a further marked improvement in growth of output and order books in June, according to S&P Global’s PMI data, extending the growth spurt that has been reported since the outbreak of the war in the Middle East. Employment was nevertheless cut sharply as firms often sought to offset the rising cost of energy and raw materials.”

Similarly, the ISM June Manufacturing PMI signaled cooling growth.

📋 Services activity surveys signal growth. From S&P Global’s June U.S. Services PMI: “A slight acceleration of business growth in the services economy takes the expansion to the strongest since the outbreak of the war in the Middle East, though the pace of growth remains lacklustre compared to that seen at the start of the year before the conflict. The survey data are hence broadly indicative of the economy only growing at a 1.2% annualized rate over the second quarter.”

Similarly, the ISM June Manufacturing PMI signaled cooling growth, albeit cooling growth.

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

🏭 Business investment activity ticks lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — rose 1.4% to a record $83.95 billion in May.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

🍾 The entrepreneurial spirit remains elevated. From the Census Bureau: “Business Applications for June 2026, adjusted for seasonal variation, were 531,423, an increase of 1.1% compared to May 2026.“

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 1.3% rate in Q2.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

(Source: S&P Dow Jones indices via TKer)

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.