The S&P 500 is showing its weakest market breadth since the Dot-com era despite remaining near record highs, according to a new note from Goldman Sachs.
The investment bank told clients on Monday that the index’s performance has become increasingly concentrated in a small group of artificial intelligence-linked mega-cap stocks, while most constituents continue to lag.
Goldman Sachs strategist Ben Snider noted that the median S&P 500 stock is currently trading 16% below its 52-week high, even as the benchmark index has gained 14% year-to-date.
At the same time, the bank’s sentiment indicator, which measures how heavily U.S. equity investors are positioned in stocks, has fallen to -0.9, matching lows recorded in March.
The bank said the combination of weak participation and cautious investor positioning suggests there could be room for a broader market recovery if macroeconomic uncertainty eases.
Reliance on technology stocks
Goldman Sachs’ warning comes as the S&P 500 remains heavily reliant on a handful of technology giants.
Data shows the top 10 stocks account for roughly 38% to 41% of the index’s total market capitalization, exceeding the approximately 27% concentration level reached during the dot-com bubble. The Magnificent Seven companies represent about 31% of the index.
Much of the market’s recent gains have been driven by AI-related companies, while participation across the broader market has weakened.
Since a late-July low, the percentage of S&P 500 stocks trading above their 200-day moving average (MA) has fallen from about 73% to 51%, despite the benchmark continuing to advance.
The concentration has fueled concerns that passive investors are becoming increasingly reliant on a small group of AI-linked stocks.
Despite the S&P 500’s gains, Goldman noted its forward P/E ratio has fallen from 22x to 19x this year, reflecting higher interest rates and investor skepticism about the sustainability of AI-driven earnings growth.
The bank’s valuation model suggests the current multiple is consistent with a return on equity of about 22%, still high by historical standards but below current profitability levels.
Valuation concerns
Broader valuation indicators continue to flash warning signs. The cyclically adjusted CAPE ratio has climbed into the 40-42 range, levels last seen during the 1999-2000 dot-com bubble. Other measures, including the Buffett Indicator and price-to-sales ratios, have also pointed to elevated valuations.
The weak market breadth has drawn warnings from commentators, including economist Peter Schiff, who said the divergence between the S&P 500 and its underlying stocks resembles conditions seen before major declines in 1973 and 2000.
As reported by Finbold, Schiff noted that while the index is less than 1% below its record high, 430 constituents remain more than 21% below their own peaks.
He argued that much of the market is already in bear-market territory despite the benchmark’s strength.
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