Market gains concentrated in biggest stocks

So far this year, 15 stocks have accounted for 50% of the gains in the Standard & Poor’s 500. Should you be worried? Not yet.

According to preliminary data from S&P, the blue-chip index has gained 8.27% this year, including reinvested dividends. Apple, up 24.5% this year, accounted for 12.8% of the S&P 500’s 2017 gain. Currently, the 15 largest S&P 500 stocks are worth more than the 355 smallest members of the index.

Market technicians like to see plenty of stocks participating in a rally. As a bull market gets long in the tooth, fewer and fewer stocks join in the fun until, eventually, the number of stocks falling overwhelm those gaining. To market technicians, the rate of participation in a rally is called “breadth,” and declining breadth is a warning signal of a downturn.

The classic way to measure breadth is the advance-decline line, which tracks the net number of stocks advancing in an index, such as the NYSE composite. A divergence between the advance-decline line and the NYSE composite can be a warning that the rally is falling apart: Typically, the advance-decline line starts to decline a few months before a major top, said Doug Ramsey, chief market strategist for the Leuthold Group.

One sign of increased concentration in the stock market: Indexes weighted by market capitalization are leading equal-weighted ones. For example, the Vanguard S&P 500 ETF (VOO) has gained 8.74% this year, including reinvested dividends, and the Guggenheim S&P 500 Equal Weighted ETF (RSP) has gained 6.7%.

The concentration of this year’s gains in a few stocks is somewhat concerning to market technicians, but has not reached alarming levels yet, “breadth is not as powerful as it was from the run off the lows in February, but that’s when you’d expect the strongest breadth,” Mr. Ramsey said. “It’s not surprising that things would thin out somewhat.”