The recent stock market performance has been quite good, and many investors may have come across the term “market breadth” watching the financial news or reading market updates. Market breadth measures how many stocks traded each day are going up or down in unison. A strong market has positive market breadth, which means most of the ~7,000 stocks trading every day had positive gains. By corollary, a weak market has negative breadth. A market environment of middling market breadth usually does not have a defined trend, up or down.
Source: FactSet
Many investors think of the Dow Jones 30 Industrials Average as “the market.” It is the oldest index—dating back to the 1890s—but it only represents 30 companies. A broader view of the market to measure breadth are three indexes: S&P 500 (large capitalization, green line), the S&P 400 (mid-size caps, blue line) and the S&P 600 (smaller caps, red line). Together, these 1500 stocks comprise more than 90% of the market value of all stocks trading in the US.
Note that all three indexes hit a 52-week high around the same time, on or about October 18. This is a classic example of strong market breadth and suggests the current uptrend still has room to run.
—George S. Farra, CFA (11/1/24)