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

A version of this article was originally published on TKer.co.

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.

(Source: Citadel)

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.

Lower stock correlations don’t appear to be correlated with active manager outperformance

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.

Most actively managed large-cap equity funds have underperformed the S&P 500 over the years at a somewhat consistent rate.

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

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.

Maybe a lot of ‘buy’ ratings are a good thing

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.

(Source: FactSet)

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.

The big picture

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.

A version of this article was originally published on TKer.co.

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