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One popular argument against the US stock market is that its gains are being driven by just a handful of large companies. The logic goes that strength in those shares can mask broader weakness.
While Goldman Sachs doesn’t dispute that reasoning, they argue that the degree of large-cap dominance right now is totally normal by historical standards.
The measure in question, known as breadth, reflects the portion of an index’s components contributing to the gauge’s overall move. High breadth means there’s a high degree of participation, which is a bullish indicator in an up-market and considered bearish as an index falls. Low breadth is viewed as a negative signal as a gauge rises, which the S&P 500 has done this year.
Right now, the 10 largest firms in the S&P 500 have accounted for 37% of the index’s return, more than double their 17% market cap weight, according to Goldman data. Apple, Facebook, Amazon, Alphabet and Microsoft alone make up 28% of the return with just 12% of overall market value.
That level of influence is actually below average, Goldman finds. A proprietary breadth metric that they track — which is scaled from 0 to 100 — currently sits at 58, well above the 30-year average of 35.
“Reports of narrow market breadth have been greatly exaggerated,” a group of Goldman strategists led by Ben Snider wrote in a client note.