Bad Breadth: Whiff of danger as market gains lack scope

NEW YORK (AP) — Even before Monday’s swoon — the worst day for stocks on Wall Street in a couple months — the market was flashing concerning signals.

Chief among them were sharp moves in the bond market that indicated worsening expectations for economic growth and inflation. Critics also noticed that a dwindling number of stocks was driving the broad market’s rise toward more records.

From June 1 through July 16, the S&P 500 climbed nearly 3% and set more than a dozen records along the way. But during that span, 57% of stocks in the S&P 500 fell. They lost an average of roughly 7%, mirror the average gain of the stocks in the index that rose.

Strategists at Morgan Stanley call the narrowing leadership in the U.S. stock market “bad breadth,” and they say it’s a sign the market’s run is moving from the early days of its cycle to the middle.

Banks, airlines and other industries that depend on a strong economy to thrive were among the losers as doubts crept into the market that the economy could fulfill investors' lofty predictions.

That's in sharp contrast to the first five months of the year, when 87% of stocks in the S&P 500 rallied and the index rose 11.9%. It’s a concept that market watchers call “breadth,” and they say it’s a healthy sign when many stocks are lifting the market.

What's driving the broad market higher this summer are the relatively few most influential stocks. Apple, Microsoft and other Big Tech stocks all rallied powerfully through June and July, for example, in part because investors expect them to grow almost regardless of the economy’s overall strength.

Because they’re so massive, and because the S&P 500 gives more weight to movements by stocks with larger valuations, gains for these Big Tech stocks are masking weakness across...