S&P 500 Breadth Falls to Lowest Level Since Dot-Com Bubble

The S&P 500’s market breadth has fallen to its weakest level since the dot-com bubble, exposing a widening gap between the benchmark and its constituents as Treasury yields rise.

The index remained less than 2% below its record high through Sept. 25, but the median S&P 500 stock was about 16% below its own 52-week high. Only 27.4% of constituents traded above their 50-day moving averages, while 48.9% remained above their 200-day moving averages.

That combination last appeared in April 2000, as the dot-com bubble began to break. A few profitable AI giants are supporting the index while stocks more sensitive to economic conditions and interest rates lag.

From the S&P 500’s Aug. 13 record through Sept. 25, the benchmark fell 0.7%. The S&P 400 midcap index declined 6.8%, and the S&P 600 small-cap index dropped 7.5%.

Over the same period, the 10-year U.S. Treasury yield increased from 4.64% to 5.18%. The yield reached 5.24% on Sept. 29, its highest level since June 2007, while the S&P 500 fell 0.77% that day.

The pattern appears more consistent with a rate shock than with simple AI concentration. Through Aug. 21, the equal-weighted S&P 500 was still about 3 percentage points ahead of the market-capitalization-weighted index for the year. The reversal accelerated after mid-August as Treasury yields climbed.

Weak breadth has not consistently preceded a major decline. In 13 cases from 1998 through 2024 when the S&P 500 was near a high but participation was weak, average returns over the following one, three, six and 12 months were 1.5%, 0.5%, 5.1% and 10.9%, respectively.

A separate review of sharp breadth contractions since 1980 found an average 10% peak-to-trough decline over the following 12 months. The two measures differ: one tracks returns at set intervals, while the other measures the largest decline during the period.

Valuation and positioning have also eased. The S&P 500’s forward price-to-earnings ratio fell from 22 to 19, near its 10-year average, while an equity-positioning sentiment gauge declined to minus 0.9, matching its March low.

The indicators to monitor are whether the 10-year yield retreats from 5.24%, the share of S&P 500 stocks above their 50-day moving averages improves, and the gap between equal-weighted and market-capitalization-weighted performance narrows. Further yield increases combined with weakening momentum among the seven largest technology stocks would deepen the market’s concentration risk.