S&P 500's record highs underpinned by narrow company participation, posing a red flag for the market.

The S&P 500 is setting record highs, but fewer companies are participating in the rally, which could be a red flag for the market. Analysts warn that narrow participation can mask underlying weakness, and since 1972, the S&P 500 has posted below-average returns when fewer than 100 companies on the NYSE also hit new highs. Big tech companies are driving the gains, and the median S&P 500 stock is trading 12% below its 52-week high. Market breadth has been improving in recent weeks, but analysts expect further improvement as investors gain clarity on fiscal and trade policies.

Title: S&P 500 Sets Record Highs, but Market Breadth Concerns Persist

The S&P 500 has been setting record highs in recent days, a dramatic turn from the market selloff back in April. However, analysts are warning that the current rally may be at risk if overall market participation in the rally holds at the current rate. According to a July 5 report from Ari Wald, head of technical analysis at wealth and investment management firm Oppenheimer & Co., and first reported by Bloomberg, the new heights the S&P 500 is reaching are being undermined by narrow company participation in those highs [1].

Market breadth, a measure of how many companies in a specific index or sector are participating in a rally, is crucial to gauge the health of the market. Wald warns that narrow participation can mask underlying weakness. Since 1972, the S&P 500 has posted below-average returns over the next one-, three-, six-, and 12-month periods when its all-time high coincides with fewer than 100 companies on the New York Stock Exchange (NYSE) also hitting new highs [1]. At the last market high, 88 companies on the NYSE also hit a high [1].

Big tech companies have been the drivers behind the recent market heights. Just five stocks—Amazon (AMZN), Broadcom (AVGO), Meta (META), Microsoft (MSFT), and Nvidia (NVDA)—are contributing over half of the S&P 500’s total return, according to an analysis from Adam Turnquist, chief technical strategist for LPL Financial [1]. This concentration of gains in a few companies raises concerns because it means those gains could easily turn into losses depending on the strength of just a handful of companies [1].

While the S&P 500 was less than 1% away from a new high at Wednesday’s close, the median S&P 500 stock was trading about 12% below a 52-week high, Turnquist finds. “Breadth is a little underwhelming,” he writes. “For context, over the last decade, the gap between the index and the median stock’s 52-week highs has averaged around 5%” [1].

The good news, according to analysts, is that market breadth has been improving in recent weeks. The share of stocks in the S&P 500 above their 200-day moving average is 61%, just below the 10-year average of 62%, says Chris Haverland, global equity strategist at the Wells Fargo Investment Institute (WFII) [1]. Another positive sign for the market: all S&P 500 sectors have participated in the rally [1].

Haverland expects to see more improvement in broader participation as investors get greater clarity on fiscal and trade policies. “Given the strong rally, however, we wouldn’t be surprised to see some consolidation in the coming months as the economy and earnings begin to digest the evolving trade policy,” Haverland says. “So, it may be a good time to rebalance portfolios” [1].

References:
[1] https://finance.yahoo.com/news/p-soaring-fewer-companies-setting-140344760.html
[2] https://fortune.com/2025/07/10/stocks-soaring-record-highs-market-breadth-red-flag/