20-Year Stock Anomaly: Key Investor Takeaways

S&P 500 Sees Nine Straight Sessions of Weak Breadth, a Rare Market Phenomenon

The U.S. stock market is experiencing a rare stretch of “bad breadth,” where more stocks are declining than advancing, even as the S&P 500 continues to climb. For nine consecutive sessions, the number of falling stocks in the index has surpassed those rising—a pattern not seen in over two decades, according to BTIG technical strategist Jonathan Krinsky.

Market breadth, a key measure of market health, has deteriorated sharply since early December. This anomaly, last observed during the period around September 11, 2001, contrasts with the S&P 500’s modest 0.4% gain so far this month, driven by strong performances from megacap technology stocks, including the so-called “Magnificent Seven.” However, this narrow leadership is raising concerns about the sustainability of the rally.

Broader market measures highlight the underlying weakness. The Invesco S&P 500 Equal Weight ETF (RSP), which assigns equal importance to all stocks in the index, has declined 2.5% in December. On Thursday, it marked its ninth consecutive loss, the longest streak since December 2018, when markets were reeling from a significant selloff.

Historically, such weak breadth has been associated with markets trading well below record highs. Jason Goepfert, senior research analyst at SentimenTrader, notes that similar instances over the past 70 years typically occurred with the S&P 500 12% below its peak. Yet, as of Thursday, the index was just 0.6% off its record close of 6,090.27, making this situation unprecedented.

This poor breadth is impacting various market segments. Value stocks, tracked by the S&P 500 Value Index (SPYV), have fallen for nine straight sessions, their worst losing streak since 2000. Momentum-driven growth stocks, such as Palantir Technologies Inc. and AppLovin Corp., have also struggled to recover, further reflecting the uneven market environment.

Analysts, including Krinsky, caution that this trend could lead to heightened volatility in early 2024, as investors lock in gains from the current rally. Despite this, the S&P 500 remains on track to deliver a total return exceeding 25% in 2024, which would mark back-to-back years of such strong performance for the first time since the late 1990s.

On Thursday, U.S. stocks closed lower across the board. The S&P 500 fell 0.5% to 6,051.25, the Nasdaq Composite lost 0.7% to finish at 19,902, and the Dow Jones Industrial Average declined 0.5% to close at 43,914.12. Investors are now watching closely to see if broader participation can return to the market or if this narrow rally will give way to further weakness.