More U.S. Stocks Are Marching To A Different Beat

The S&P 500 kept climbing this week. The number of stocks moving with it shrank.

More U.S. equities are breaking from the index, a pattern that has caught the attention of traders focused on breadth.

The index rose 0.3% on Tuesday, yet advancing stocks on the New York Stock Exchange trailed decliners by a wide margin. Technology megacaps, the usual drivers of the rally, accounted for most of the gains. Outside that group, the selling was broad.

The divergence has been building for weeks. At the end of May, the S&P 500's equal-weight version sat about 4% below its market-cap weighted counterpart. That gap has since widened, traders said. The message: the rally is leaning harder on a handful of stocks.

Some traders see the narrowing as a warning sign. "When the market depends on a few names to push the index higher, the risk of a sudden reversal rises," a New York-based trader said. Others argue that the AI theme is durable enough to keep those names elevated.

Either way, the tape is sending a different signal than the index. For a look at a similar divergence in another market, see The Indices Said Calm. The Tape Said Something Else.

The next test comes Friday with the May personal consumption expenditures price index. A hot print, traders said, would reinforce the case for the Fed to hold rates and pressure the high-multiple stocks that have led the rally.