And why does that matter? A Seeking Alpha analysis asserts, “…that’s a big issue. If you dig a little deeper into the numbers, less than half of the stocks in the S&P 500 Index are above their 200-day moving average. That number started the year at around 75% and was as high as 90% a few years ago”.
The narrow scope of the rally and companies enjoying positive trends means the entire positive price movement is fragile. This brings the current rebound’s solidity into questions, the SA article goes on, “Essentially, investors appear to be relying on a relatively limited set of companies for their investments (that’s lemming-like behavior). If those stocks start to crack, there could be a swift downdraft in the broader index (as the lemmings run off the cliff).”
Of course, the large-cap growth companies who have been lifting the S&P 500 may continue to muscle the benchmark higher or the historically strong fourth quarter may lift the struggling stocks in the index. The divergence is just a data point to consider, but one that is most certainly worth monitoring.