Investing September 27, 2026 0 Comments

Why Savvy Investors Are Dumping Index Funds and Striking Gold Off the Beaten Path—Are You Missing Out?

Ever wonder why the S&P 500 seems almost impervious to the usual market dips? Spoiler alert: it’s got a little secret called AI quietly steering the ship. While artificial intelligence keeps charging ahead, there’s a whole undercurrent beneath the surface that tells a very different story — one of subtle weakness and uneven footing. Charts, from equal-weighted ETFs to small cap value plays, reveal a market grappling with rising interest rates and shifting fundamentals, where only a select few—yes, the AI and the MAG7—are shrugging off the pressure. So, is this resilience a sign of strength or a masked brittleness waiting to crack? Whether you’re a momentum chaser or a value hunter, understanding this dynamic is crucial before making your next move amidst the noise. Let’s peel back the layers and see what’s really under the hood.

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You are not seeing the S&P 500 fall because the S&P 500 is strongly influenced by AI.

AI is not stopping but here’s what is underneath the hood.

RSP (S&P 500 equal weighted) and the % of stocks above the 200 day moving average.

The top part of the chart shows the percentage of stocks above the 200 day moving average and the bottom is the Invesco S&P 500 Equal Weighted ETF (RSP).

The RSP is down 4.5%. The % of stocks above the 200 day moving average is at 45%. Usually if it stays above 50% its a healthy strong market. Obviously both are showing weakness.

I want to lay out a longer timeframe chart so that you can see the 2018 dip, the COVID dip, the 2022 dip to see how the % of stocks above the 200 day moving average is.

The low is 17%. But a lot of the intermediate low is about 37%.

I think this is a healthy market. Interest rates on the shorter end (2Y) or longer end (10Y and 30Y) all rose and thus discount rate is higher, and prices here show most stocks are going to struggle in the future.

Except AI and MAG7.

That is healthy. Those stocks that are suppose to be affected are affected.

Now lets see some more charts.

The Russell 2000 index, representing small caps, is down more 6.88%. Notice RSI has weaken to what usually is a short term bottom.

You know Kyith is going to show the Avantis US Small Cap Value ETF. Small cap value is heavy in financials, consumer discretionary, industrial and energy. This shows that these are down 6.2% as a collective.

The S&P 500 Market Cap weighted is barely down 0.76%. They are heavy on the stocks that has visible very high earnings growth and what’s this kind of interest rate rise going to do to them? They are shrugging it off?

You will tell me “Kyith, factor investing is not working.” and I will tell you that is not true, some factors such as quality is working even in this short time period:

This is the Dimensional US High Profitability ETF. It invest in the companies with high operating cash flow profitability to book value. Just down 1%. Its those who only associate factor investing with value that has a view that factor investing struggles.

Small cap consumer discretionary is down 11%.

Small cap industrial is down 12.3%. Kind of look like they are trying to find a base.

Small cap financials is down 8.6%. I zoomed out more just to show how RSI is low relative to history.

Small cap energy is up 37% this year but its down like 8. something percent as well.

Large cap equal weight consumer discretionary is down 10%

Large cap equal weight industrial is down almost 10% as well.

Large cap equal weight financials is down 7.7%.

Large cap equal weighted real estate is 10%. They are suppose to be rate sensitive! down the same!

Why do I say it’s a fundamentally sound market?

If we have a market that won’t go down, there will be investors asking what is going on, this does not make sense.

So if you have a market that has uncertainty and many of the underlying securities correcting 10%, isn’t that fundamentally sound?

There is uncertainty so the market prices in the uncertainty?

It is always the investors who are invested in one market cap weighted MSCI World or S&P 500 that makes these kind of comment. You don’t see the REIT investors investing in CFA [Amova StraitsTrading Asia ex-Japan REIT Index ETF] making these comments because when longer rates are up, its down. When rates are down, its up.

Should you buy strength or weakness?

I think that depends on your strategy and your conviction.

I get co-workers, readers asking this question often.

If you want to focus on strength, you are focusing on price momentum, fundamental momentum. But momentum decays. What make the strategy work is re-constitution.

If you want to focus on weakness, then you are focusing on perhaps reversion to the mean (which you think is higher). But reversion to the mean can take time, and mean can be lower. What make the strategy work is actually diversification because there are some that will become smaller and smaller but there are some others that after these macro episode will resume their growth.

Both involve different kind of emotions but what’s important is remember the critical elements of the strategy.

“Kyith if I invest in the IWDA only, what should I do now?”

Well I assume you are asking because you cannot find an entry point. Well early in the year, there was a 6% correction.

Did you manage to add then?

If not, what were you waiting for?

A bigger fall? Then continue to wait lor.

Waiting also takes emotional toll. Everything takes some emotional toll. That comes with the game and that emotional management is the critical part of the game plan.

For those that are less market cap weighted, you should be able to find some value opportunities.

But do be aware that rates could spike to 6% and the markets can go down 10% from this. You cannot catch the bottom. But do realize that there will be a point where rates are less sustainable. It’s a question what does a moderate set of rates look like. 4.5%? 3.5%? 1%? 5.5%? How would the markets be?

Your guess is as good as mine.

I think the best strategy is to lump sum, sit on your investment, and learn the emotional part of the game.

That is what I try to do with my Daedalus Income portfolio and Crystalys portfolio. I do have maybe about $50,000 not invested yet so there may be something to do there.

Articles like this is me trying to keep in touch and make sense of what is happening in the market.

Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.

Readers also follow Kyith to learn how to plan well for Financial Security and Financial Independence.

Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Fee-only Wealth Advisory Firm Providend. All opinions on Investment Moats are his own and does not represent the views of Providend.

You can view Kyith’s current portfolio here, which uses his Free Google Stock Portfolio Tracker.

His investment broker of choice is Interactive Brokers, which allows him to invest in securities from different exchanges all over the world, at very low commission rates, without custodian fees, near spot currency rates.

You can read more about Kyith here.