Be careful! This indicator of the US stock market is at its weakest in history.
During six periods when the breadth of the US stock market was weakest, four of them occurred near market peaks, including December 1999, July and September 2000, and October 2007.
"When the market rises broadly, the trend is strongest; when only a few blue chips rise, the trend is weakest," is an old saying on Wall Street, reportedly said by legendary market technician Bob Farrell.
This year's US stock market rise is all thanks to the giants
David Rosenberg, founder of Rosenberg Research, has recently quoted this sentence frequently because the 2023 stock market rise is mainly driven by a few large-cap stocks.
From the beginning of 2023 to last Friday, the market value of the top 10 largest stocks in the United States has increased by about $2.5 trillion.
According to Dow Jones Market Data, this increase exceeded the overall market value increase of the S&P 500 index.
Data from FactSet shows that these stocks have driven the two best-performing sectors in the S&P 500 index this year, the communication services and information technology sectors, which have risen by more than 22% year-to-date, nearly three times the overall increase of the S&P 500 index.
So far this year, the S&P 500 index has risen by more than 7.5%.
Some Wall Street analysts believe that although the stock market has risen this year, the weakness in market breadth is one reason why investors should be cautious.
A stock strategy team at JPMorgan Chase said: "Measured by certain indicators, the breadth of the stock market is the weakest ever."
US stocks may decline
As of last Friday, the S&P 500 index has closed above its 200-day moving average for 34 consecutive trading days, according to BTIG. However, only 47% of the constituent stocks have prices above the 200-day moving average, a huge difference that is unusual in decades.
Krinsky found that since 1990, the S&P 500 index has traded above the 200-day moving average for at least 34 trading days 29 times.
Krinsky believes that US stocks may decline. For example, four of the six weakest breadth periods occurred near market peaks, including December 1999, July and September 2000, and October 2007.
Krinsky said that the difference between market winners and losers may widen until the major stock indexes finally "catch up" with poorly performing individual stocks.