Downdraft Could Come from Market Breadth

Downdraft Could Come from Market Breadth

The wide dispersion we’re currently seeing in stocks indicates we may be headed for a dip, says CFRA chief investment strategist Sam Stovall. This according to a recent article in Chief Investment Officer.

In a recent note, Stovall pointed out that the market has staying power when a high percentage of sectors, industries and stocks are rising together. The current level of dispersion, he noted, “is uncomfortably wide,” adding that since 1990, the average difference between the best and worst performing sectors on a trailing nine-month basis has been about 36 percentage points versus the current level of almost 80 points. According to Yardeni Research, today’s leading sector, energy, is up 34% compared to utilities, which is lagging with only a 3% increase.

Historical data shows that during previous periods of such extremes, the “S&P 500 fell an average of about 3% in the following nine months compared with a rise of 7.2% for all nine-month periods,” the article reports. Stovall noted, “Though no guarantee of an impending decline, today’s wide sector berth points to an increased likelihood of underperformance, relative to its own average return.”

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