Stocktake: Stock market rally has narrowed

United States indices keep hitting all-time highs but under-the-surface action suggests all may not be as well as it appears.

Until recently, the rally had appeared broad and healthy, but fewer stocks are now participating in the advance. According to SentimenTrader, only 30 per cent of S&P 500 stocks outperformed the index over the last month. That’s extraordinarily low – historically, only 2 per cent of days have seen fewer stocks outperform the index.

Weak market breadth is also noted by LPL Research, which points out that less than half of stocks were trading above their 50-day moving averages last week. The last time the S&P 500 closed at a record high with fewer than half its member stocks trading above their 50-day average was in December 1999. That was at the tail end of the dotcom bubble, when a dwindling number of large-cap stocks kept indices aloft.

Similarly, market weakness today is masked by the recent outperformance of large-cap giants such as Apple and Facebook, which last week became the latest trillion-dollar company.