S&P 500 Faces Nine Consecutive Days of Weak Market Breadth, Unseen in Over 20 Years
The U.S. stock market is grappling with another wave of “bad breadth,” a phenomenon where more stocks decline than rise, even as major indexes show gains. This trend has persisted for nine straight sessions, a rarity not seen since the aftermath of September 11, 2001, according to BTIG technical strategist Jonathan Krinsky.
Market breadth, which compares the number of advancing stocks to those declining, has worsened significantly since the start of December. Despite this, the S&P 500 has managed a modest 0.4% gain this month, buoyed by strength in megacap technology stocks, including the “Magnificent Seven.” However, these gains mask weakness elsewhere in the index, raising concerns among investors.
The divergence is even more apparent when considering the performance of the Invesco S&P 500 Equal Weight ETF (RSP), which has fallen 2.5% this month. The ETF has declined for nine consecutive days, marking its longest losing streak since December 2018, when markets were in the throes of a sharp selloff.
Typically, such dismal breadth occurs when the S&P 500 is far below its record highs. According to Jason Goepfert, senior research analyst at SentimenTrader, similar episodes over the past 70 years have coincided with the index being 12% below its peak, on average. Yet, as of Thursday, the S&P 500 was just 0.6% off its record close of 6,090.27, making the current situation unprecedented.
The underperformance isn’t limited to equal-weighted funds. Value stocks, tracked by the S&P 500 Value Index (SPYV), have also struggled, with the index posting its longest losing streak since 2000. Growth-oriented momentum stocks like Palantir Technologies Inc. and AppLovin Corp. have faltered, while value stocks have seen even sharper declines.
As investors navigate this turbulent period, some analysts predict heightened volatility in early 2024 as profit-taking intensifies. Despite this, the S&P 500 remains on track for a remarkable 25% gain in 2024, potentially marking the first back-to-back years of 25%+ total returns, including dividends, since the late 1990s.
U.S. stocks ended lower on Thursday, with the S&P 500 down 0.5% at 6,051.25, the Nasdaq Composite falling 0.7% to 19,902, and the Dow Jones Industrial Average shedding 0.5% to close at 43,914.12. Investors now turn their focus to whether broader market participation will improve or further weakness will set the tone heading into the new year.
