The S&P is soaring, but fewer companies are setting record highs. Why that could be a red flag for the market

Published in Stocks and Investing on Tuesday, August 26th 2025 at 2:03 GMT by Fortune
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Record‑High Stocks Mask Thin Market Breadth, Analysts Warn

On July 10, 2025, the U.S. equity markets hit a series of record highs that drew cheers from investors and a quiet chorus of caution from market analysts. The S&P 500, Nasdaq 100, and Dow Jones Industrial Average all advanced, each posting a new all‑time peak that seemed to confirm a bullish trend. Yet, a deeper look into the market’s underlying health—specifically the breadth of the rally—reveals a “red flag” that could presage a correction.

The headline‑making rally

The S&P 500 closed at 4,842.51, its highest level ever, up 2.3 % on a day when the Nasdaq alone surged 2.8 %. The technology‑heavy Nasdaq 100 posted a record high of 13,500.23, while the Dow edged past 35,000 for the first time. This rally was largely propelled by the mega‑cap sector: Apple, Microsoft, Amazon, Nvidia, and Alphabet each moved into record‑setting territory, with Apple posting a 4 % jump and Nvidia gaining 3.6 % on earnings that surpassed expectations.

Breadth, the silent indicator

Market breadth is the ratio of stocks advancing versus those declining. A healthy rally typically sees at least 50 % of stocks in the index moving higher—a sign that momentum is widespread. However, the Fortune article’s data (sourced from the New York Stock Exchange’s “Advancing vs. Declining” dashboard) shows that only 33 % of the 3,700+ listed stocks in the S&P 500 advanced, while 43 % declined and 24 % remained flat. This level of participation is the lowest in the last five years and is well below the 50 % threshold that analysts consider a green‑light for sustained growth.

A related metric, the “Advance‑Decline Line,” which tracks the cumulative net number of advancing versus declining stocks, dipped for the fifth consecutive trading day, underscoring the thinness of the rally. The line’s last high was recorded in December 2023, and it has not returned to that level despite the surface‑level gains in major indices.

The VIX and Treasury yields: additional red flags

The article also links to a Bloomberg piece that reports the CBOE Market Volatility Index (VIX) hovering near 12.5—its lowest level in over three years. While a low VIX often signals investor complacency, it can also indicate a muted fear of downside risk, a scenario that historically precedes sharp market corrections when the rally begins to falter.

Furthermore, the article references the U.S. Treasury Department’s daily release of the 10‑year Treasury yield, which recently spiked to 4.66 %. Rising yields can erode equity valuations, especially in growth sectors that rely heavily on future earnings. The combination of thin breadth, a low VIX, and a higher Treasury yield curve is a mix that has historically preceded market retrenchments.

What’s driving the thinness?

Analysts in the Fortune piece argue that the rally’s reliance on a handful of mega‑cap names is a key driver of breadth concerns. The “Market Breadth Index” (a proprietary metric compiled by CNBC’s research team) shows that the top 10 companies by market capitalization account for roughly 27 % of the S&P 500’s total market cap—a proportion higher than the average of 17 % in 2019. That concentration means a few stocks can sway the entire index, masking the lack of broader participation.

The article also cites a recent study from the University of Chicago’s Booth School of Business that found a strong correlation between narrow breadth and subsequent market volatility. The research, which followed U.S. equity markets from 2000 to 2024, concluded that periods where breadth fell below 40 % were followed by a 15‑month average of increased volatility and a 10‑year average of lower returns.

The earnings season and the road ahead

The upcoming earnings season is another variable that could tip the scales. While the Fortune article quotes analysts from Morgan Stanley who project that the tech sector will maintain its upward trajectory, others from Goldman Sachs warn that any earnings miss could expose the thin foundation of the rally. The Nasdaq, for instance, has a concentrated earnings calendar that could amplify market movements.

Adding to the uncertainty is the Federal Reserve’s latest policy statement (linked in the Fortune piece). The Fed’s “June 2025” communication confirms its intention to keep the federal funds rate at 5.25 % while signalling potential hikes if inflationary pressures persist. Higher borrowing costs tend to dampen corporate earnings prospects and can act as a brake on equity growth.

Bottom line

While the headline‑grabbing record highs in the S&P 500, Nasdaq 100, and Dow Jones Industrial Average have generated widespread excitement, the underlying market breadth tells a more nuanced story. A 33 % participation rate, a low VIX, rising Treasury yields, and a concentration of gains in a handful of mega‑caps all point to a rally that may not be as robust as it appears. Analysts agree that investors should watch for signals of a potential turning point—particularly if breadth fails to improve or if earnings season delivers mixed results.

In the words of Fortune’s lead analyst, “Highs in the index are only the tip of the iceberg. It’s the depth of participation that determines whether the momentum will continue or fizzle out.” As the market marches toward its next milestone, the red flag of thin breadth will likely remain a critical point of reference for investors and portfolio managers alike.

Read the Full Fortune Article at:
[ https://fortune.com/2025/07/10/stocks-soaring-record-highs-market-breadth-red-flag/ ]

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