By Joseph Adinolfi
The S&P 500 is trading just shy of record territory, yet most individual stocks are struggling
The U.S. stock market is suffering from a serious case of “bad breadth.”
A lot of weird stuff is happening in the stock market right now.
The S&P 500 SPX, the most widely followed U.S. equity-market benchmark, eked out a modest loss for the month of September. At first glance, this might suggest that stocks have taken the summer surge in bond yields in stride. Higher yields typically weigh on stock prices for a handful of reasons.
But look beneath the surface, and it’s a whole different story. Small- and midcap indexes like the Russell 2000 RUT and S&P MidCap 400 MID have sold off hard, while many members of the S&P 500 were recently trading in correction territory – defined as a drop of 10% or more from a recent record high. During the month of September, technology XX:SP500.45 was the only S&P 500 sector to finish the month higher.
The gap between the price of a popular S&P 500 ETF and the price of an ETF that tracks the index’s equal-weighted sibling – seen as a reliable measure of how the median stock in the index is performing – has, as of Thursday, reached one of its widest levels on record going back to the early 2000s, according to Dow Jones Market Data. The equal-weighted S&P 500 XX:SP500EW was trading about 6% below a record high reached last month.
“Tech is hanging in there, and everything else is just falling quite honestly in a straight line,” said Scott Brown, founder at Brown Technical Insights. “It’s really masking what is a quite obvious correction. If you’re a stock picker, or you own anything besides a few select tech names, it can be a big problem.”
Equal-weighted S&P 500 set to fall for 7th straight week
The Invesco S&P 500 Equal Weight ETF RSP, which tracks the equal-weighted version of the benchmark, moved higher on Thursday but remained on track to log a seventh straight week in the red.
That would be tied for the longest losing streak for the median S&P 500 stock since May 2022. Back then, stocks were mired in a painful bear market as the Federal Reserve kicked off an aggressive series of interest-rate hikes that many feared would drive the U.S. economy into a recession.
If the streak continues for an eighth week, it would be the longest on record for the RSP going back to at least 2003.
52-week lows vs. 52-week highs
Through Wednesday’s close, the number of stocks listed on the New York Stock Exchange that were making new 52-week lows had surpassed the number making new 52-week highs for 23 straight sessions – the longest such streak since October 2023.
Back then, the S&P 500 was trading on the cusp of correction territory, after rising bond yields put pressure on stocks in August, September and October of that year. These days, performance at the index level is looking much more resilient.
Advance-decline line trending lower
Here’s another chart that shows just how out of step major indexes like the S&P 500 are with the average stock listed on the New York Stock Exchange.
A falling NYSE advance-decline line shows that the majority of stocks are falling.
Tech stocks vs. small caps
The next chart comes via Jonathan Krinsky, a top technical strategist at BTIG.
It shows how rising Treasury yields BX:TMUBMUSD10Y have contributed to the hollowing out of what had previously been a more broad-based rally. As long-dated yields climbed over the summer, the ratio between the price of an ETF QQQ that tracks the Nasdaq-100 NDX and another ETF IWM that tracks the small-cap Russell 2000 started rising in lockstep.
It depicts how rising borrowing costs can weigh more heavily on shares of smaller companies. It also shows why investors should expect a sharp rally in small-cap stocks if yields suddenly turn lower, Krinsky said.
Moving averages turn lower
Technical strategists use moving averages to monitor the underlying trend for an index or stock. Based on recent performance, most S&P 500 stocks have been struggling – another sign of weakness beneath the surface in the stock market.
Roughly 80% of stocks in the S&P 500 were recently trading below their 50-day moving average – a level that hadn’t been seen since March, when the market was in the grip of a selloff inspired by the start of the Iran conflict and the subsequent closure of the Strait of Hormuz.
At the same time, about 60% of stocks in the index were trading below their 200-day moving average, a level that hasn’t been seen since the April 2025 “liberation day” tariff tantrum.
In both cases, the S&P 500 was well below its most recent record highs.
The million-dollar question
There are basically two schools of thought about what this latest bout of bad breadth might mean for the stock market in the fourth quarter.
Either the market will see a monster rally – likely led by small caps and other interest-rate-sensitive stocks – as volatility in the bond market begins to cool and money begins to pour back into lagging corners of the market.
Or, the elite artificial-intelligence names helping to buttress the S&P 500 against further losses could start to struggle themselves. Strong gains for stocks like Meta Platforms (META) and Microsoft (MSFT) have helped to offset plenty of weakness elsewhere within the index. But if investors decide to shift money away from AI and back into the rest of the market, that dynamic could reverse.
“That’s the million-dollar question right now,” BTIG’s Krinsky told MarketWatch during an interview.
Just because breadth is bad doesn’t mean it can’t get worse, Krinsky added. He expects the performance gap between the S&P 500 and its equal-weighted sibling could soon start to close.
“I think it’s more likely we’ll see the S&P 500 lower – but either way, that spread is going to narrow,” Krinsky said.
Ken Jimenez and Michael DeStefano contributed.
-Joseph Adinolfi
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10-01-26 1701ET
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