Historically Rare! S&P's Nine Consecutive Gains Hide Warning Signs—Is a Turning Point Approaching?

There is a looming concern behind the S&P 500 Index’s latest streak of consecutive record highs: fewer and fewer stocks are participating in the rally.

Jonathan Krinsky, Chief Market Technician at BTIG, noted that if the upward momentum of the largest weighted giants within this benchmark index begins to reverse, the index could become vulnerable. Many of these giants are tied to artificial intelligence. He believes that such a shift could start to emerge in June.

According to Dow Jones Market Data, the S&P 500 Index logged its ninth straight day of gains on Tuesday, June 2, and is on track to achieve a tenth consecutive week of gains. However, beneath the surface, the index has posted negative breadth for six straight sessions—meaning that even as the index continues higher, more S&P 500 components have declined than gained over these days.

Looking at the chart below, the upper portion shows that the S&P 500 saw consecutive daily gains from early April to early June; the lower portion shows the daily net difference between advancing and declining S&P 500 stocks, which has remained negative for the past six days.

(Source: BTIG, Bloomberg)

This situation is relatively rare in history. In a report on Tuesday, Krinsky wrote that, based on data going back to 1996, the S&P 500 has never before seen six consecutive days of gains with a majority of constituents falling each day. In fact, he noted, the index had never even experienced such a phenomenon for more than three days in a row.

This could be cause for concern, as it suggests the current rally is increasingly reliant on a handful of highly weighted stocks. The divergence between the S&P 500 rising while most constituent stocks weaken highlights what Krinsky calls the “market breadth paradox”—even if the majority of stocks underperform, the largest weighted names can still drive the index higher.

As long as these leading stocks continue to rise, the S&P 500 can keep climbing—even if many other stocks struggle. But Krinsky believes that if the momentum behind these winners begins to fade, the same concentration could have a reverse effect: the index could be dragged lower even if participation improves in other segments of the market.

Krinsky wrote, “Once sustained momentum reversal finally occurs, it’s easy to envision a scenario where market breadth is strong but the major indexes are still falling. We continue to believe June is likely the time window when this return begins.”

Market concentration is quite pronounced. Krinsky points out that the information technology sector now makes up nearly 40% of the S&P 500’s weight—a record high. The top 10 components of the index account for about 40% of total market capitalization as well.

In addition, according to Dow Jones Market Data, in the past five trading days, only two of the S&P 500’s 11 sectors have advanced: technology up 5.9% and energy up 0.3%. By contrast, three sectors each saw declines of 3% or more, including the real estate, utilities, and communication services sectors.