When we first exposed the shockingly dire lack of breadth in US equity markets, it was shrugged off by the mainstream media as yet another 'worry' in the wall to climb. It seems, however, that facts inevitably force their way to the surface and so both Bloomberg (more than 100% of this year’s increase in the S&P 500 Index is attributable to two sectors, health-care and retail. That’s the tightest clustering for an advancing year since at least 2000) and The Wall Street Journal (Amazon, Google, Apple, Facebook, Gilead and Walt Disney Co. account for more than all of the $199 billion in market-capitalization gains in the S&P 500) have been forced to expose the ugly truth about US equities... it is not a stock market - it's a market of 6 tail-chasing momentum stocks.

U.S. equities are being pushed along by the fewest stocks in more than 15 years, which as Bloomberg reports, is a sign of fatigue in a bull market that already rivals anything since World War II in duration.

More than 100 percent of this year’s increase in the Standard & Poor’s 500 Index is attributable to two sectors, health-care and retail. That’s the tightest clustering for an advancing year since at least 2000, data compiled by Bloomberg show.

Breadth has fallen apart in a rally that is now the third longest since 1940, leaving investors exposed after three years without a 10 percent correction. Adding to concerns: the two industries shouldering this year’s advance trade at more than 22 times annual earnings -- a 20 percent premium to everything else.

“You’ve gone from a market which lives or dies by people’s feelings about the macro environment to a market that’s going to live or die according to the bottom-up beliefs of the prospect of a limited number of individual issues,” said Michael Shaoul, chief executive officer at New York-based Marketfield Asset Management, which oversees $5 billion.

Reliance on fewer and fewer companies has been a hallmark of maturing bull markets, most memorably the Internet bubble when six computer and software companies accounted for 55 percent of the S&P 500’s gain over the 12 months leading up to the peak.

This is so damningly exposed in the following chart showing the impact of the largest few stocks relative to the rest... and now we are seeing that correcting...

But it gets worse, as The Wall Street Journal reports, just a few companies are driving the gains in major U.S. stock indexes this year, raising fresh concerns about the health of the market’s advance.

Six firms— Amazon.com Inc., Google Inc., Apple Inc., Facebook Inc., Netflix Inc. and Gilead Sciences Inc.—now account for more than half of the $664 billion in value added this year to the Nasdaq Composite Index, according to data compiled by brokerage firm JonesTrading.

Amazon, Google, Apple, Facebook, Gilead and Walt Disney Co. account for more than all of the $199 billion in market-capitalization gains in the S&P 500.

 

The concentrated gains are spurring concerns that soft trading in much of the market could presage a pullback in the indexes. Many investors see echoes of prior market tops—including the 2007 peak and the late 1990s frenzy—when fewer and fewer stocks lifted the broader market. The S&P 500 is up 1% this year while the Nasdaq has gained 7.4%.

Other indicators are also flashing yellow. In the Nasdaq, falling stocks have outnumbered rising stocks this year, sending the “advance-decline line” into negative territory, a phenomenon that has come before market downturns in the past, investors and analysts said.

Bad breadth is everywhere in US equity markets...

Charts: Bloomberg