US stock market grows ever more dependent on a handful of stocks

The US stock market is starting to show signs of weakness beneath the surface. The S&P 500 itself has fallen only 1.4% since mid-August, but many individual stocks are performing much worse. Only 44% of companies in the index are now trading above their average over the past 50 trading days. That is the lowest percentage since April 2026 and shows that the performance of the S&P 500 is becoming increasingly dependent on a smaller group of stocks.

Only 44% of stocks remain above their moving average

A useful way to look at the health of the stock market is to count how many companies are trading above their moving average.

For the S&P 500, this currently produces a striking picture. Only 44% of stocks are above their average over the past 50 trading days. Since mid-August, this percentage has fallen by 14 percentage points.

The chart from The Kobeissi Letter, based on data from Dow Jones Market Data and FactSet, shows that this indicator has fallen sharply in a short space of time. The current percentage is the lowest since April.

Strength is also fading over a longer period. At present, 64% of S&P 500 stocks are trading above their average over the past 200 trading days. That percentage is down 10 percentage points and has reached its lowest level since June.

Put simply, this means that more and more individual stocks are lagging behind, even if that is not yet fully visible in the S&P 500 itself.

Large-cap stocks are keeping the index afloat

A comparison with the equally weighted version of the S&P 500 makes the difference clearer.

In the regular S&P 500, companies with huge market capitalisations have much more influence on the level of the index. A strong move in a few large companies can therefore partly conceal weakness in dozens of smaller companies.

In the equally weighted S&P 500, every company carries roughly the same weight. This index has fallen by 2.9% since mid-August. The regular S&P 500 has lost only 1.4% over the same period.

That difference suggests that the largest companies are performing better on average and are thus absorbing part of the weakness elsewhere in the index.

Weakness need not mean an immediate decline

The figures do not automatically mean that a major correction in the S&P 500 will follow. They mainly show that the foundation of the US stock market is becoming narrower.

For a broadly based strong market, you would want to see a large proportion of stocks performing well at the same time. Now the opposite is happening: fewer and fewer companies are staying above key moving averages.

With only 44% above the average of the past 50 trading days, it will therefore be interesting to see whether lagging stocks recover. If they do not, the S&P 500 will remain increasingly dependent on a relatively small group of large companies for its performance.