A version of this article was originally published on TKer.co.
A few charts I saw recently got me thinking about the challenge of trading individual stocks to generate above-average returns.
The first chart comes from Citadel’s Scott Rubner.
It shows the correlation between the stocks of the S&P 500, basically the degree to which the stocks move together. A high correlation suggests that the stocks move in parallel, while a low correlation means that they move independently.
Rubner’s data shows that correlation has fallen to its lowest level in at least 15 years.
Communications have fallen to their lowest level in at least 15 years.
(Source: Citadel)
Because low correlation means that stocks deviate from the S&P 500 average, this means that there are more opportunities to trade individual stocks in ways that outperform the market. Hence, the “stock picker market.”
But because there may be many ways beating the market doesn’t mean Easier to do so.
In these low-correlation markets, you can also be overweight stocks that underperform the S&P while being an underweight stock that outperforms. Any move will make you do worse than the market average.
Fundstrat’s Hardika Singh recently highlighted some of the S&P’s biggest and biggest underperformers after modest moves in the market average over the past few weeks. In his Friday letter:
Since memory and storage stocks peaked on June 22, the S&P 500 has gained about 1%. But the movement within a single stock has been very volatile. Shares of Micron fell 18% during that period, Sandisk fell 18%, and Intel fell 20%. Concerns that Big Tech has an overbuilt AI infrastructure have dragged down higher-performing semiconductor stocks.
The reason why the index was not hurt is that those big declines were canceled out by very big gains from other market sectors like financials, industrials, and health care. For example, Moderna’s stock is up 29%, and Axon Enterprise has added 42% since June 22.
Also, making these wrong trades means underperforming the market, possibly by a wide margin.
To be fair, many people are so successful in trading that they outperform the market. But the majority they failed to do so.
Low stock correlation does not appear to be associated with higher executive performance
Notice in Rubner’s chart that the correlation has tended to be very low over the past 15 years. If a low correlation meant that then it was Easier to trade individual stocks, you would think that actively managed equity funds would outperform the market.
However, S&P Dow Jones Indices data shows that many large-cap equity funds have underperformed the S&P 500 over the years with some consistency. In fact, 2025 saw the management’s third worst performance in the last 15 years.
Many large-cap equity funds have underperformed the S&P 500 over the years with some consistency.
(Source: IS&P Dow Jones Indices via TKer)
According to BofA’s US Mutual Fund Performance Update, just 38% of active large-cap funds outperformed their Russell benchmarks in the first half of 2026. The low correlation between stocks does not seem to help many active managers.
One of the key challenges in picking stocks is that few stocks generate above-average returns over any long period of time. And very few produce the returns that come out, which greatly distorts how market valuations are calculated.
Therefore, if you fail to target and gain exposure to some of these few winning names, you may have disappointing returns.
Perhaps more ‘buy’ ratings are a good thing
That brings me to another chart that made me think conflicting thoughts about stock picking.
From John Butters of FactSet, this chart shows the distribution of analysts’ buys, holds, and sells for each S&P 500 stock. Some of you may be surprised, but most of the 12,840 analyst ratings are buy and hold, and very few are sells.
Distribution of analysts’ buy, hold, and sell estimates for each S&P 500 stock
(Source: FactSet)
If you consider the historical evidence that most stocks tend to underperform, you might make a snarky comment about how bullish analysts’ ratings are worthless to those who trade these calls. And you probably have a good point.
I’ll offer a different perspective: Buying or holding a wide variety of stocks increases your chances of encountering companies that generate extraordinary returns that lift the performance of your overall portfolio.
In other words, if all this buying and holding is causing you to build a diversified portfolio of many stocks, maybe that’s a good thing.
Of course, this assumes that the major players who have succeeded in the stock market are not missing out on those sales figures.
Big picture
I’m sure there are good stock pickers out there who do very well during periods of low correlation. But that’s different from suggesting that low correlation means more people can be successful stock pickers.
To be clear, I don’t think there’s anything inherently wrong with investing in certain businesses that you believe in or stocks that you think offer incredible value. Your instincts and research about certain industries will sometimes be better than market consensus.
But I’ll think twice if you hear phrases like, “It’s a market of choice.” Just because many stocks diverge from the market average doesn’t mean it’s easy to pick stocks that outperform the market.
A version of this article was originally published on TKer.co.
