S&P 500 Median Stock Down 17% While Index Sits Near Record

The median S&P 500 stock was down roughly 17% from its 252-day high, even as the index itself finished Monday just 0.3% below its August record close. That gap, laid out in an analysis by Warren Pies of 3Fourteen Research, is the clearest sign yet that America's favorite benchmark has stopped describing the market it tracks.

The divergence became a big story in September. Goldman Sachs derivatives strategist Brian Garrett told clients in weekend commentary that the S&P 500 was "no longer behaving like the clearing price for risk" in the U.S. market. The index barely reflects what is happening with its own members, Garrett argued.

The culprit is concentration. The Magnificent Seven — Microsoft, Apple, Nvidia, Alphabet, Meta Platforms, Amazon.com and Tesla — finished Monday with a combined market capitalization just shy of $25 trillion, a record high according to Dow Jones Market Data.

How far has the index drifted from the average stock?

The rolling three-month correlation between the market-cap-weighted S&P 500 and its equal-weight version was drifting back toward its lowest levels in recent memory as of Monday, Dow Jones Market Data showed. The index has also grown untethered from other risky assets, from rival equity gauges to credit spreads, breaking longstanding historical relationships.

Ari Wald, head of technical analysis at Oppenheimer & Co., called the collapse in the relationship between the index and the average stock a sign of "late-cycle behavior." Wald told MarketWatch: "It paints the picture of this later equity cycle environment, where correlations are lower, and we have these credit spreads widening out as well."

Wald noted that the number of Russell 3000 stocks trading above their 200-day moving average had turned sharply lower — a pattern typically seen only when major indexes are struggling. Both the S&P 500 and the Russell 3000 were recently trading near record territory instead.

Does narrow breadth doom the bull market?

History does not offer a clear verdict. During the dot-com boom, the NYSE advance-decline line peaked in 1998, data showed. The S&P 500 and Nasdaq composite still ran higher for another two years as the tech-driven bull market carried on.

Garrett counts himself among those who see the hollowing out of the market as a risk worth monitoring. Conversations with people "in the trenches" and internal data showing hedge funds had cut back on their net leverage suggested Wall Street was less inclined to stay heavily long.

Wald, for his part, said the setup is not necessarily a cause for concern right now. As long as the AI trade continues, it should be enough to drive the S&P 500 and Nasdaq higher.

"Ideally, you want everything to be working. But at least right now the right things are working," Wald said.

What is the 'AI vs. non-AI' split?

Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, framed the market not as fracturing but as splitting into two camps: "AI" versus "non-AI." The split now extends beyond U.S. stocks into credit and emerging markets.

"Neither bonds nor EM equities are a diversifier from the dominant 'AI Revolution' theme," Emanuel said.

Emanuel and his team have been tracking S&P 500 stocks trading with "negative beta" — stocks that routinely move opposite the broader market. That count has recently hit its highest level on record. Rather than a risk, Emanuel sees opportunity: these stocks act as an inherent buffer for diversified portfolios, absorbing money when the AI theme wobbles. That dynamic helped the S&P 500 avoid a larger monthly loss in July, even as AI names came under pressure.

"We expect the portfolio diversifying properties of negative beta stocks to remain meaningful into 2027," Emanuel said.

Is breadth coming back?

Breadth started thinning in mid-August as Treasury yields pushed higher, but it has staged something of a comeback over the past two trading sessions. Ten of the S&P 500's 11 sectors finished higher on Monday for a second consecutive session — the first such back-to-back showing since April 14, 2025, when stocks were setting up for a historic rebound after the White House's initial "liberation day" tariff rollout nearly sent them into a bear market.

For investors holding fewer of the mega-cap winners than the benchmark does, the question now is whether that tentative broadening holds. If the AI trade falters without the rest of the market catching fire, the record $25 trillion sitting in seven stocks becomes less a cushion than a cliff.