Top-heavy market rally may be more fragile than it appears

This is a top-heavy stock market, as evidenced by the fact Apple is now worth more than the 2,000 companies that make up the small-cap Russell 2000 index. Although the S&P 500 is up 8 per cent this year, a few mega-cap stocks are doing the heavy lifting. Apple and Microsoft have gained over 30 per cent. Facebook parent Meta and chip giant Nvidia have more than doubled.

Not all technology companies are flying high. Seven months on from October’s market bottom, only 61 per cent of tech companies are above their 200-day average, notes Schwab’s Liz Ann Sonders. In contrast, seven months after March 2009′s major market bottom, “virtually all” tech companies were above their aforementioned average.

Similarly, although the S&P 500 has closed above its 200-day average every day since mid-March, just 47 per cent of stocks are trading above that same level.

[ Apple reports €63.5bn profit at main Irish subsidiary ]

That’s not normal, notes BTIG strategist Jonathan Krinsky. He found 29 instances where the S&P 500 traded above its 200-day average for extended periods. Only twice was market breadth weaker than today.

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Breadth is also concerning HiMount Research’s Willie Delwiche, who notes the number of stocks making new highs has exceeded new lows on only one day in the second quarter. Despite the S&P 500′s advance, the median stock has actually fallen slightly this year, notes Delwiche, suggesting the rally is more fragile than it appears.