Market’s narrowing breadth

Market breadth has weakened significantly over the past month, with only 22.9 percent of S&P 500 stocks trading above their 50-day moving average. This indicates that more than three-quarters of stocks are in a downtrend. Weak market breadth has occurred before, such as in March 2025 during tariff worries and concerns of a US recession, and in March 2026 during the "SaaSpocalypse" due to fears of agentic AI disrupting traditional software companies.

Despite the current strong S&P 500 near all-time highs, 78 percent of S&P 500 stocks were down in September, showing how few stocks are driving the market. The Nasdaq Composite has also seen its longest streak of new 52-week lows, with 25 consecutive sessions. Higher interest rates usually impact tech stocks, but heavy spending on AI by companies keeps demand for chips and data centers strong.

Utilities, real estate, and home builders have struggled due to rising borrowing costs and mortgage rates. Higher oil prices and inflation are affecting consumer stocks, particularly airlines hit by surging jet-fuel costs. Financials lagged in September, with concerns over higher funding costs and bond market volatility. A new threat from agentic AI is the possibility of an "agentic bank run," where AI agents move deposits from low-paying accounts to higher-yielding alternatives, potentially weakening banks' advantages.

Hong Kong and European banks have also experienced sector-wide sell-offs. France's bond yields breached the five percent level, and credit-default swaps rose to their highest since 2013. The US dollar index gained over three percent since early September, as investors seek the dollar and US markets for safety. Some relief came Friday with weaker-than-expected employment data, causing Treasury yields to drop and sparking a broader equity rally.

Strong earnings growth and capital spending in technology, especially in AI, continue to support the market. The iShares Expanded Tech-Software ETF (IGV) gained 3.9 percent, while the VanEck Semiconductor ETF (SMH) rose 10.9 percent over the past three weeks. As long as earnings growth and capital spending in tech persist, the market should follow its lead.