Market Breadth

George Chin |

Too often people focus on headline numbers in analyzing market returns. In many cases, markets that are measured by indices are reflective of significant performance in a fairly limited number of positions. This is because the commonly reported indices, such as the S&P 500 are heavily weighted towards a limited group of stocks. Currently that limited group is mostly technology positions. 

One might expect the S&P 500 to be 500 stocks equally weighted, but that’s not the case. Market cap concentration skews the results of market indices performance giving a false impression about the overall market performance. 
Market breadth is when more components of the market rise and not just a small subset of positions. This is a better reflection on the health of the overall economy as well as the performance of equity assets. Increasing market breadth is a sign that markets and overall economic growth are showing signs of strength of the whole economy. It is an indicator we look at very closely, particularly since we believe in diversified strategies. 

One might understandably ask does it really matter about market breadth. I suppose one could just buy a heavily skewed index and ride the wave up. That’s a great strategy when things are going up, but when things are going down, violent fluctuations can be very uncomfortable and punitive. 
We’re looking below the surface, past the headlines, and looking at the overall economy and your overall investment strategy as we seek to be a diversified asset manager on your behalf. We believe that’s our fiduciary responsibility.


Disclosures: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

Indexes shown are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. Index returns are in no way a reflection of the returns of a client portfolio and are not presented as a comparison of performance.

The opinions expressed herein are provided for informational purposes only and are not intended as investment advice. All investments involve risk, including loss of principal invested. Past performance does not guarantee future performance. Individual client accounts may vary. Although the information provided to you on this site is obtained or compiled from sources we believe to be reliable, Destination Wealth Management cannot and does not guarantee the accuracy, validity, timeliness or completeness of any information or data made available to you for any particular purpose. Any links to other websites are used at your own risk.