S&P 500: Market breadth rebounds as heavyweights struggle

The S&P 500 gained just 0.9% in October through 29 October, reaching 7,720 points. Behind that modest move lies a much stronger recovery: 388 of the 502 stocks analysed, approximately 77%, are higher for the month. The median constituent return stands at 7.4%, while the equal-weighted S&P 500 has advanced 5.7%. Gains are therefore spreading across the US equity market, even as the headline index makes little progress.

S&P 500 market breadth recovers sharply

At the end of September, only 40% of stocks traded above their own 200-day moving average, while just 21% were above their 50-day moving average. By 29 October, those figures had climbed to 63% and 65%, respectively.

The comparison with the record high is particularly revealing. When the S&P 500 reached 7,819 points on 6 October, only 46% of constituents were above their 200-day moving average. At the previous high on 13 August, that figure had been 74%. Participation has since broadened again, while the index remains below its record.

 S&P 500 and its 200-day moving average, the percentage of constituents above their 200-day and 50-day moving averages, and the cumulative advance/decline line. 

Sector rotation: Energy leads as heavyweights drag

Nine of the eleven sectors have advanced in October so far. Energy leads with a gain of 11.8%, followed by consumer staples at 9.8%, utilities at 9.4% and healthcare at 9.3%.

Communication services, however, has fallen 14.2%, while information technology is down 2.7%. Their weakness helps explain why the broader recovery has had a limited impact on the headline index: the S&P 500 weights constituents by their float-adjusted market capitalisation, giving larger companies greater influence over its performance.

Advance/decline line: Confirmation still missing

The advance/decline line, which accumulates the daily number of rising stocks minus falling stocks, has also recovered. The cumulative daily balance stands at +1,497 for October so far, following −1,583 in September, almost reversing the previous month’s decline.

However, the line remains below its August peak. Improving breadth is a constructive signal, but it has yet to confirm a new, broadly supported move to record highs. An S&P 500 breakout above 7,819 points, accompanied by a new high in the advance/decline line, would strengthen the positive picture.