Barron's: A Few Big Stocks Are Driving the Market's Gains

Published May, 2020

By Al Root

In an ideal world, all stocks go up together and everyone is happy. The current Covid-19 environment, however, is far from ideal. Market breadth is lousy. Investors need to think about the implications of “narrow breadth” and what it means for stock picking in the second half of 2020.

One way to know the world hasn’t reached an ideal state yet—aside from strolling through Times Square—is to look at market breadth . Market breadth, roughly speaking, answers the question: Are many stocks or just a few stocks driving the market higher?

For traders, wider breadth is a good sign for the stock market—and the economy. It means investors see better days ahead for most businesses. Narrower market breadth means a lot of business are facing headwinds. What’s more, it means investors are piling into just a few names.

Today, breadth is lousy. The Nasdaq Composite is the poster child for narrow market breadth. The 10 largest stocks in the Nasdaq have gained, in aggregate, almost $900 billion. The other 2,600-or-so stocks have lost about $300 billion. The tiny sliver of names are driving all the gains.

The 10 largest stocks in the Nasdaq are the usual suspects: Microsoft (MSFT), Apple (AAPL), Amazon.com (AMZN), Google parent Alphabet (GOOG), Facebook (FB), Intel (INTC), Nvidia (NVDA), Netflix (NFLX), Cisco Systems (CSCO) and Adobe (ADBE). Only Cisco, among the 10 largest, is down year to date, falling about 6%.

Read more