U.S. stocks have been suffering from “bad breadth” all year. But over the past month, the situation has gone from dire to extremely dire, underscoring some of the risks that arise when the market becomes too heavily reliant on a handful of megacap stocks.
It isn’t the only major U.S. equity index to have given up all its gains for the year this week. Both the Dow Jones Industrial Average DJIA and Russell 2000 index RUT of small-cap stocks have as well. Furthermore, an analysis from Bespoke Investment Group found that the S&P 500’s 10-day advance/decline line has dropped to -1,629, the lowest level in exactly a year. At the same time, the median S&P 500 stock has fallen more than 2%, with 54% of the stocks in the S&P 500 now trading in the red year-to-date, according to data shared by Bespoke.
“The top stocks are still holding up the market and outperforming the rest by a significant margin,” Hickey said during a phone interview with MarketWatch. “When you see these broader indexes go negative on the year, that fits nicely with the theme of narrow leadership,” said Steve Sosnick, chief market strategist at Interactive Brokers, during a phone interview with MarketWatch. “Much of the market’s gains have been predicated on this narrow group of megacap leaders.”If anything, the market’s decline over the past few weeks has only made the market more lopsided.