By Jacob Sonenshine
Everyone loves a strong stock market, but we should all be wary when just a few stocks are responsible for that strength.
The stock market has certainly been strong. The S&P 500 index was rising 0.5% this week, while the Nasdaq Composite was up 1.3%, and both had been trading at record highs before trending lower on Friday.
The S&P 500's technology sector was responsible for much of the stock market's gains, boosted by Nvidia and other artificial-intelligence semiconductor stocks after President Donald Trump lifted the ban on Nvidia's H20 chip sales to Chinese customers. The Technology Select Sector SPDR exchange-traded fund was up 1.9% for the week.
Most stocks, though, didn't shine so brightly. The Dow Jones Industrial Average, which has a lower weighting in tech stocks, dipped 0.2%, as was the Invesco S&P 500 Equal Weight ETF. Tuesday was particularly ugly. By midday, only 89 S&P 500 stocks were up on the day, even though tech was carrying the index to a 0.1% gain. If it had closed at those levels, it would have been the most lopsided breadth during a day when the index rose since 2001, according to BTIG. By the end of the day, 48 stocks closed up, and the index ended in the red.
The poor breadth is a sign the market is growing nervous about several related risks. Tariff rates have risen this month and could rise more by Aug. 1 -- Trump's self-imposed deadline for trade deals. That's raised concerns about inflation as well as margin pressures for companies forced to pay more for their goods -- and given shares of economically sensitive companies exposed to tariffs a tough time. The SPDR S&P Retail ETF fell 1% this past week, while General Motors fell 0.9% and Ford Motor declined 5.9%.
That weakness could spread, but it will probably need a stronger catalyst than just possible tariffs. Maybe the Federal Reserve will disappoint investors at its meeting at the end of July. Or maybe Big Tech companies will offer weak guidance when they report later this month. Or maybe Trump doesn't chicken out, and tariffs spike on Aug. 1. But with breadth as weak as it is, it wouldn't take all that much.
"Breadth is narrowing, internals are softening, and exhaustion signals are building," MI2 Partners analysts write. "We're approaching a pressure point."
That doesn't mean the market is in for a nasty slide like the 19% drop earlier this year, but it could be painful enough that investors with cash to put to work might want to hold off for a bit.
Sometimes waiting really is the best policy.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 18, 2025 15:24 ET (19:24 GMT)
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