All year long folks have been debating the extent to which this market does or doesn’t have “bad breadth.”
And yes, that is a terrible cliche. And no, it’s not “clever.”
It’s just that when discussing market breadth and whether or not there’s a lack of it, it’s impossible to ignore the fact that “bad breadth” sounds a lot like “bad breath”, so this is one cliche that’s simply unavoidable. My apologies.
The other thing about this discussion is that there are a lot of ways to measure market breadth and so, it’s pretty much impossible to be “right” – or “wrong” for that matter.
But cliches and protestations notwithstanding, it’s difficult to ignore the divergence between the fortunes of the S&P and the equal-weighted S&P. That chart looks like this:
But let’s zoom in a bit so you can get a better idea of what’s going on here.
As Bloomberg notes, “the S&P 500 climbed 0.2 percent for the week, the fourth increase in five, [but] its equal-weight cousin slipped 0.4 percent.” Here’s a visual:
As you can see, the equal-weighted index just had its worst week since May.
But perhaps a better picture emerges when we look at relative performance. Seen in that light, the equal-weighted index just had its worst week of 2017 versus the regular S&P!
“Thinning breadth is tricky for bigger active investors,” Stan Altshuller, chief research officer at data-analytics firm Novus Partners Inc told Bloomberg, adding that “when investors pile into the same securities that gain faster than everyone else in an environment of low market breadth, they are going to get spooked. Breadth may not be the markets’ biggest challenge right now, but between low volatility and low correlation, it all adds up.”
Summed up in one more visual: