US stocks are near all-time highs but weak market breadth continues to concern.

Even as the cap-weighted S&P 500 hit fresh highs last Tuesday, an equal-weighted version of the index fell almost 1 per cent (the equal-weight index weighs all 500 stocks in the index equally, whereas the cap-weighted version is dominated by the most valuable companies, like Apple and Microsoft).

Although the S&P 500 has hit multiple new highs over the last two months, its equal-weight counterpart has gone nowhere over the same period, notes Bespoke Investment.

Weak breadth is "potentially serious", says CFRA Research's Sam Stovall, as mega-cap strength is "masking growing internal weakness".

The same point is stressed by Morgan Stanley’s Mike Wilson, who says we’ve “never witnessed breadth this weak with major indices at all-time highs”. Markets have taken on a “much more defensive posture” under the surface, which Wilson characterises as a “rolling correction” with the most speculative assets tumbling from their highs.

The current environment reminds Wilson of 2018, when breadth was also weak and which eventually resulted in a 20 per cent correction in December.

“The foundation of the market is fragile,” says Wilson. “It needs to strengthen or else the major averages are vulnerable.”