How can a stock market spend a month within sight of a record while more than three-quarters of its companies fall?
That was September for the S&P 500. The index slipped about 0.5%. FactSet data show 78% of its members fell. Both things are true, and the distance between them has a name.
The Name Is Breadth
Breadth is simply a count of how many shares are taking part. The index gives you the score. Breadth tells you how many players touched the ball.
There are three common ways to measure it, and none needs a finance degree. The first is to count companies hitting their highest price of the year against those hitting their lowest. On the New York Stock Exchange, new 52-week lows beat new highs on 14 of the 15 trading days to the end of September.
The second is to ask how many companies are trading above their own average price of the past 50 trading days, a rough test of whether a share is rising or sinking. At the start of October, the answer for the S&P 500 was about one in four, the lowest since April and down from 70% in mid-August.
The third is the simple one, and it needs a short explanation.
Four Companies, Half the Gain
A standard index gives each company a say in proportion to its size. The biggest companies move the number most. An equal-weight version of the same index gives all 500 the same say, so it behaves much more like the typical share.
Put the two side by side, and you can see who is doing the work. By one count of this year’s returns, the S&P 500 is up about 12%, and four companies, Nvidia, Apple, Micron and AMD, supplied roughly six of those twelve points. The equal-weight version is up about 9%. Only half the companies that began the year in profit in the index are currently at their starting point.
The order of events matters too. At the end of August, the equal-weight index was roughly 14% against 12%. Then September took roughly 5% off it while the headline index barely moved. It is a dinner party where four guests are carrying the conversation, and everyone else has gone quiet and started studying the pudding menu.
What Breadth Can and Cannot Tell You
It cannot tell you what happens next. The analysts quoted in that Yahoo Finance report were careful to say weak breadth is a reason to pay attention, not a signal to sell. A narrow market can stay narrow for a long while, and it can mend in two ways. The quiet majority can catch up, or the four talkers can lose their voices. Only one of those is pleasant.
This is why your own account may look nothing like the news. If you hold individual shares, a smaller fund, or most things outside American technology, you spent September with the 78%, while headlines write about a handful of giants. That is arithmetic. It is not a judgment on your choices.
It also explains the appeal, and the catch, of equal-weight funds. They spread the bet, but they must keep trimming what has risen and topping up whatever has fallen, and that upkeep usually makes them dearer than a standard tracker. I have written before about the fees you cannot see. They do not stop mattering because the idea is sensible.
What I Do With It
Less than you might expect. A broad, low-cost tracker is still a sensible tool, and I have written about how concentrated a tracker like that has become. Nothing in the breadth figures changes that. Chasing whichever part of the market did best last month is a habit I have paid for before and do not intend to fund again.
What’s changed is routine. When the headline says the market is up, and a portfolio disagrees, I check the breadth before I question myself. It takes a minute, it is free on most charting sites, and it is cheaper than assuming I am the problem.
The index reports the score. It leaves out who was playing.
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