Weak market breadth and heavy dependence on technology have become increasingly popular concerns. But when equal-weighted stocks begin outperforming technology, does that mean leadership is finally broadening — or is it an early warning that the market’s strongest sector is starting to roll over?
This week’s video examines the evidence from both sides. We compare current breadth conditions with the much more serious deterioration seen during the 2022 bear market, including S&P SmallCap (IJR) new lows, NYSE common-stock new lows, Nasdaq (QQQ) new highs and new lows, the Nasdaq New High–New Low spread, the NYSE Breadth Momentum Oscillator, the Zahorchak breadth model, and Nasdaq volume momentum.
We also step back and examine the broader risk picture. The S&P 500 (SPY) and technology sector remain near or at new all-time highs, while the Nasdaq continues to hold above potentially important longer-term support. Equal-weighted stocks outperformed technology this week, which could represent healthy rotation rather than outright deterioration in the market leaders.
Other indicators provide additional context. The VIX remains well below the elevated levels associated with more difficult market environments. Consumer staples continue to lose ground relative to the S&P 500, suggesting investors have not made a decisive shift toward defensive positioning. High-yield credit spreads also remain relatively contained compared with the stress seen during past recessions, corrections, and bear markets.
The evidence is not uniformly bullish. Several breadth measures have weakened, and new lows have increased in portions of the market. Those developments deserve respect and continued monitoring.
The key question is whether breadth catches up to the major indexes as participation broadens, or whether technology and the major averages eventually catch down to the weaker areas of the market.
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