This article emphasizes the importance of strong breadth for the stock market's continued upward trajectory in 2025. Using the recent market performance, particularly the shift from December to January, the author illustrates how a diverse range of sectors contributing to the market's gains is crucial for sustained growth. The author analyzes the impact of large-cap tech on the market, highlighting the need for balance and rotation among different sectors.
Strong breadth is the key to seeing the stock market 's advance continue in 2025. This has been proven once again in just two days this week. Let's begin with Monday. The breadth shift from December to January has been nothing short of monumental, which was on grand display all session. The market's big sell-off was courtesy of large cap tech getting hammered. And the damage was limited courtesy of most stocks refusing to give in to the DeepSeek rhetoric and actually advance.
Going back to this past December, the S & P 500 started the month with the historic 14-day streak of negative breadth from Dec. 2 through December 19 (which was punctuated by the last Fed-induced -2.8% drubbing on Dec. 18). A few things stood out from that period other than the streak, itself. First, the S & P 500 logged gains six times, and the growth sectors led 11 of the 14 days. This isn't surprising. In fact, we needed the huge positive influence of tech, communication services and consumer discretionary to prevent a bigger roll over last month. The obvious concern back then was when profit-taking did arrive in the Mag 7 and the like, that it would hurt the S & P 500 and all of the non-growth sectors, as well, which all got hit hard in the preceding weeks... Those concerns were warranted: as December ended and January began, large cap growth got hammered, and the major stock indices struggled. But even as growth was reeling, other sectors stepped up, and signs of strong breadth through January's first two weeks became evident. The narrative truly flipped on Jan. 13, with the S & P 500 logging a noticeable positive reversal after the prior week's damaging bearish engulfing pattern. From that point, the SPX had positive breadth nine times in ten trading sessions through Monday, Jan. 27. And this Monday's effort was easily the most impressive, as 70% of the index advanced as the S & P 500 itself, dropped 1.5%. Thus, over the last two weeks (and again this Monday), it has become clear that investors have been buying the stocks that got clobbered in December. Turning to Tuesday, the S & P 500 bounced back nearly 1%, but a very small percentage of its holdings actually advanced with it – only 30% - the polar opposite of Monday. In other words, the index's final performance numbers were entirely reflective of the biggest Technology stocks again on Tuesday, but in the opposite direction. The good news is that this shows that rotation continues to be present. It was extremely significant (and necessary) to see capital flow into 'the field' on Monday. And given the extreme carnage that large cap Tech endured on Monday, it was again crucial to see demand come back to the sector on Tuesday. The bottom line is that while large cap growth always will have a huge influence on the S & P 500 and the other market-cap weighted indices, the biggest stocks can't lead all the time. And when the behemoths experience profit taking – for any reason – it will be important to see demand in the other sectors – like we've seen so far in January
STOCK MARKET BREATH ROTATION SECTOR PERFORMANCE LARGE CAP TECH
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