The market’s weak breadth is starting to catch up to it. Stocks fell Tuesday , as a pullback in artificial intelligence names weighed on the major averages. As of midday trading, the Dow Jones Industrial Average fell as much as 459.62 points before cutting those losses. The S & P 500 dropped 0.7%, while the Nasdaq Composite slid 1.7%. Palantir tumbled more than 7%. A possible harbinger for this slump may have been the lack of stocks moving higher. On Monday, for example, the S & P 500 ended the trading session higher, even though more than 300 of its constituents closed in negative territory. That reliance on just a handful of tech names has more investors nervous a correction could be near, if the big AI names fail to sustain their leadership or run out of momentum. “Some clients have flagged that the narrow breadth despite improving earnings from SPX493 points to increased fears and/or overvaluation,” read a Tuesday note from JPMorgan’s trading desk with the subtitle “Narrow Breadth Triggers Rotation away from U.S. Equities.” “This could trigger a flight to safety (Rates / Credit) and / or to international options especially if the USD resumes its decline,” the note continued. Here are some signs of narrowing market breadth: A comparison of the market cap weighted S & P 500 (SPY) , versus the equal-weighted index (RSP) , shows breadth is at its lowest going back to 2003. In October, the number of declining S & P 500 stocks outnumbered advancing ones during October. Indeed, more firms are calling for vigilance. Craig Johnson, chief market technician at Piper Sandler, noted that the firm’s proprietary breadth indicators are pointing to “the potential for a sharp pullback or correction.” “Investors should be cautious chasing extended upside in this concentrated rally,” he wrote, adding, “Reduce exposure to underperforming sectors and to those breaking key support levels. Be vigilant with large-cap tech stocks as a consolidation phase appears likely.”
