The U.S. stock market is suffering from another bout of “bad breadth.”
Since the start of December, breadth — typically measured by comparing the number of stocks that are climbing to the number that are falling — has deteriorated dramatically, even as the S&P 500 has continued to climb. That has led to something that investors haven’t seen in more than 20 years.
As of Thursday’s close, more stocks in the index have fallen than risen for nine straight sessions, according to Jonathan Krinsky, a technical strategist at BTIG.
There has been only one other period in recent memory where the index’s breadth has been this weak for this long: heading into, and immediately after, Sept. 11, 2001.
For now, shares of megacap technology stocks like the so-called Magnificent Seven have helped to pick up the slack, compensating for weakness elsewhere. Still, the reversion to such a narrow market after a broad-based postelection rally is making some nervous.
To be sure, the S&P 500 has gained 0.4% since the start of December, after tallying its best month in a year in November. But a similar gauge that assigns an equal weighting to each member stock hasn’t kept up.
The Invesco S&P 500 Equal Weight ETF RSP has fallen 2.5% in December. On Thursday, it finished below its opening level for the ninth straight day, the longest such streak since Christmas Eve 2018, Krinsky said.
Back on Christmas Eve 2018, stocks were mired in a punishing selloff that ultimately caused the S&P 500 to tally a loss for the calendar year. One day earlier, on Dec. 23, 2018, Treasury Secretary Steven Mnuchin released a statement announcing he had held calls with the CEOs of six major banks to discuss the turmoil in markets.
Typically, when breadth has been this dismal, stocks have been well below record levels. There have been fewer than 20 comparable episodes over the past 70 years or so, according to Jason Goepfert, senior research analyst at SentimenTrader.
On average, these occurred with the S&P 500 at 12% below its most recent record. As of Thursday’s close, the index was down 0.6% from 6,090.27 — its latest record closing high, reached Friday. According to Goepfert, that’s the closest the index has ever been to a record high with breadth this weak.
Heading into December, Krinsky said he had expected an unwind of the powerful momentum trade that has helped drive the market’s postelection rally.
Investors got a taste of that on Monday , and many big momentum names like Palantir Technologies Inc. PLTR and AppLovin Corp. APP have yet to bounce back. But at the same time, value stocks have gotten crushed.
The S&P 500 Value Index SPYV also fell for the ninth straight day on Thursday — its longest losing streak on record, according to data going back to 2000 shared by Dow Jones Market Data.
“We will admit the last few days have given us whiplash, although we’re likely not alone,” Krinsky said. He added that he expects this could be a preamble to a larger bout of volatility early next year, as investors scramble to take gains.
The S&P 500 is currently on track to climb more than 25% in 2024. Including dividends, this would be the first time the index has produced a total return north of 25% in two consecutive calendar years since the late 1990s, FactSet data show.
U.S. stocks finished lower on Thursday, with the S&P 500 SPX down 0.5% at 6,051.25. The Nasdaq Composite COMP fell 0.7% at 19,902. The Dow Jones Industrial Average DJIA, meanwhile, shed 234.44 points, or 0.5%, at 43,914.12.