Breadth Is Buzzword in 2016 Stock Market as Giants Loosen Grip

  • More U.S. stocks participating this year in both directions
  • Breadth improves to give equal-weighted best month since 2011

For better or worse lately, when the U.S. stock market moves, more stocks move with it.

Breadth as tracked by the relative size of swings in the Standard & Poor’s 500 Equal Weight Index has risen to highs not seen since at least 2012, a welcome development to anyone who got sick of watching four or five stocks drag indexes around in 2015.

The phenomenon has been especially pronounced during the rally that has restored more than $2 trillion to share prices after the worst start to a year on record. In the advance that began on Feb. 11, about 490 stocks in the S&P 500 have taken part in the rebound, compared with fewer than 420 over the period that followed last August’s correction.

“This is showing you that the participation and the rally back is a lot more broad this time. That’s pretty optimistic.,” Pravit Chintawongvanich, head derivatives strategist at Macro Risk Advisors, said by phone. “It’s certainly a lot more encouraging than the last time we rallied back, where it was entirely driven by Facebook, Amazon and Google.”

Years like 2015 have been unusual in the bull market that began in March 2009, a run that was marked by unprecedented breadth for most of its first six years. To some, last year’s contour was an ominous sign of just how fragile the market had become, with the 10 biggest stocks by market value in the S&P 500 rising more than 20 percent while the full index’s return was negative.

More stocks are participating this year -- in both directions. Yesterday’s 1.2 percent retreat in the S&P 500 sent this weeks’ decline to 1.5 percent. In the equal weight version, a proxy for breadth because megacaps exert the same influence as its smallest members, the weekly loss is 1.9 percent.

Weighted for size, the S&P 500 gained 6.6 percent in March for the best monthly gain since October. Stripping out market-value biases, shares posted a 7.7 percent advance, the strongest since October 2011. Viewed like this, stocks outpaced the S&P 500 by more than 1 percent for two consecutive months through March, the first time that’s happened since 2012.

The equity market’s breadth also looks different from the bottom. From the Feb. 11 low through the following month, the equal-weighted index outpaced the S&P 500 by 3.1 percentage points. During that period, every stock in the index but eight posted gains. That breadth is a large improvement from last year’s recovery: a month out from Sept. 28, the equal-weight index trailed the S&P 500 by 1.5 percentage points. Over the same period, 58 stocks were still left in the red.

“When combined with the strong price action, it shows that the advance has been broader than last fall’s,” said Frank Cappelleri, executive director at Instinet LLC.“Last fall, the final three weeks of it was mostly due to large-cap tech. Other areas lagged. That has not been as clear this time."

From Sept. 28, when the index fell neared its Aug. 25 trough, through Oct. 28, the top 10 contributors to the S&P 500 lifted the index by a total of 41.16 points. Apple Inc., Microsoft Corp. and Exxon Mobil Corp., the three largest companies by market cap, accounted for 16.6 points. This year, however, the biggest companies’ contribution was sliced by nearly one-third. From Feb. 11 through March 11, the top 10 shares lifted the index by 29 points.

Greater breadth means a stronger market and more support to stocks when they do turn negative, Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird, said in a note to clients Thursday.

“Short-term breadth thrusts have helped fuel the bounce over the past seven weeks,” Bittles wrote. “Improving longer-term breadth trends is evidence of important healing that is occurring beneath this surface.”

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