There’s a lot of talk about bad stock market breadth right now.
One of the numbers getting attention is the percentage of stocks on the New York Stock Exchange (NYSE) that are above their 50-day moving average.
Recently, that number fell below 30%.
If you don’t watch markets all day, that sentence probably means absolutely nothing to you. So let’s make it simple.
Think of the 50-day moving average as a stock’s average price over roughly the last 10 weeks.
When a stock is above that average, it’s generally been doing well lately. When it falls below, it’s been struggling.
So when fewer than 30% of stocks are above their 50-day average, it means about seven out of every 10 stocks have been struggling lately.
That “sounds” pretty bad. And, apparently, we should all be terrified.
Except there’s nothing particularly unusual about this.
Breadth expands and contracts throughout a bull market. Stocks correct, leadership changes, and new groups take their turn.
We’ve seen fewer than 30% of NYSE stocks above their 50-day average during some of the healthiest bull markets of the past 25 years.
This isn’t some strange new development.
We’ve seen this movie before.
Remember 2003 to 2007?
Let’s go back to the bull market that started in 2003.
Stocks were climbing out of the wreckage of the dot-com crash, and over the next several years the S&P 500 kept working its way higher.
It was a great run for stocks, but it was not a straight line.
During that bull market, fewer than 30% of NYSE stocks were above their 50-day average several different times.
We saw it around August 2004. We saw it again in 2005, and then again later that year. It happened again in 2006.
Each time, you could have looked at that one number and convinced yourself something was terribly wrong.
Each time, the bull market kept going.
In fact, while the percentage of NYSE stocks above their 50-day average kept dropping below 30%, the S&P 500 roughly doubled in value from the 2003 lows to the 2007 highs.
Think about that. We had four years of these supposedly scary breadth readings along the way, while the stock market doubled.
Eventually, of course, things really did start to deteriorate.
By 2007, weakness was showing up in more places and the character of the market was changing. The bull market eventually ended.
But it wasn’t because some magic 30% line got crossed. That had already happened several times on the way up.
That’s the point.
Fewer than 30% of stocks being above their 50-day average didn’t tell us when the bull market was over. We’d already seen the same thing happen several times while stocks were in a perfectly healthy uptrend.
The number by itself wasn’t enough. We needed more evidence.
Think about your favorite baseball team. Even a team that wins 100 games is going to have losing streaks during the season.
If they lose five games in July, you don’t immediately fire the manager, trade the players, and burn your jersey.
You want to know if they’re still hitting. You want to know if the pitching is holding up. You want to know if the rest of the team is picking up the guys who are struggling.
The stock market works the same way. One bad number doesn’t tell you the season is over.
You watch what happens next.
We’re Doing It Again
Now let’s fast-forward to the bull market that began after the October 2022 lows.
We’ve already seen this happen several times.
In the fall of 2023, the percentage of NYSE stocks above their 50-day average fell below 30%. Breadth “looked terrible.”
Most stocks were struggling over the short-term, and there was no shortage of people telling us how unhealthy the market was.
Then stocks did the opposite.
By early February 2024, more than half of NYSE stocks were back above their 50-day average. The major indexes went on to make new all-time highs.
Then we did it again.
April 2025 was another great example. The percentage of stocks above their 50-day average once again fell below 30%.
Then stocks recovered again.
That’s why today’s reading doesn’t automatically tell me something is broken.
Could today’s short-term weakness eventually turn into something much more important? Absolutely. That’s why we measure this stuff in the first place.
But I don’t think breadth is a light switch.
Above 30% isn’t automatically good. Below 30% isn’t automatically bad. Markets are much messier than that.
I want to know what happens after we get these readings. Do more stocks start participating again? Do new leaders emerge?
When technology takes a break, does money rotate into financials, industrials, or energy?
Are laggards catching up? Or does the weakness continue spreading into more stocks, more sectors and longer-term trends?
That’s the breadth conversation I’m interested in.
And it’s exactly why we spent so much time talking about sector rotation in Thursday’s note.
Weakness in one group doesn’t necessarily mean the market is falling apart.
What matters is whether other groups are stepping up to take its place.
The fact that seven out of 10 stocks are below their 50-day average tells us that a lot of stocks have had a rough couple of months.
That can be useful information.
But history also tells us that this has happened repeatedly during some of the healthiest stock market environments this century.
A great baseball team can still lose five games in a row.
The important question is what they do next.
This Week in Everybody’s Wrong
On Monday, we saw a pretty big gap between reality and perception.
Everybody’s hung up on scary stories and looking for evidence to confirm their fears.
Meanwhile, tailwinds for a year-end rally are gathering.
On Tuesday, we talked about the Magnificent Seven.
They peaked late last October, and they went sideways for almost 12 months.
Other stocks took their turns, but now the stars are back in the game.
On Wednesday, we shared a basic warning about technical analysis and the stock market.
If you stare too closely at one indicator over a short timeframe, you can lose sight of what’s really happening
Indeed, here’s what we see when we zoom out right now.
On Thursday, we made a couple of big observations and one main point.
We’re building computers that can think for themselves, and we’re creating new participants in the economy.
And we humans can prosper in this “robot economy.”
On Friday, we explained how the stock market is like a relay race.
One runner doesn’t need to carry the whole burden.
In fact, you want one runner to lead for a while, then another, then another…
On Saturday, Grant Hawkridge returned with a follow-up on his recent piece on breadth and the S&P 500.
So Grant tested every seven-month window across the four-year presidential cycle.
One period stood above all 47 others, and it starts on Thursday.
Have a great Sunday.
We’ll see you Monday morning…