By Joy Wiltermuth

About 60% of the stocks in the S&P 500 are down more than 20% from their all-time highs

The S&P 500 is less than 1% away from eclipsing its 7,798.99 record high, and the Nasdaq just crossed into record territory.

The S&P 500 was on the verge of following the Nasdaq Composite Index to a fresh record high on Monday, with technology stocks and other artificial-intelligence plays helping lift equities out of a recent funk.

The S&P 500 SPX was off 0.44% from its record close of 7,798.99, hit on Aug. 13, according to Dow Jones Market Data. This comes after the Nasdaq COMP crossed its prior peak of 27,093.90, reached in early June.

After a tepid stretch, the megacap technology stocks in the so-called Magnificent Seven MAGS group were doing some of the heavy lifting Monday, while semiconductor SOX SOXX, memory DRAM and hardware names, such as Advanced Micro Devices (AMD), also roared higher.

The rally speaks to the allure of eye-popping corporate earnings growth and the roughly $1 trillion in annual capital expenditures expected for the artificial-intelligence build-out over the next several years.

Yet it also masks weakness under of the surface of the stock market, where the toll of tariffs, inflation, surging energy prices and higher borrowing costs has begun to bite.

"Breadth has actually weakened as the index has moved toward an all-time high," said Anthony Saglimbene, chief market strategist at Ameriprise, in a phone interview Monday. He was speaking about a backdrop in which a smaller share of the stock market participates in a rally.

While AI plays might be back in vogue, utilities have struggled, as have consumer discretionary stocks, including names tied to automobile components, textiles and luxury goods, he said. "A lot are well off their 52-week highs," he added.

Specifically, while the S&P 500 was back on the doorstep of its August peak, 59.2% of the stocks in the index were down 20% or more from their all-time highs, as shown in the below chart from Dow Jones Market Data.

Many on Wall Street view a decline of at least 20% from a record high as defining a bear market. However, many battered S&P 500 stocks have been volatile, moving up and down by 20% or more in a matter of months.

The S&P 500 hasn't been 1% away from a record high at the same time as a large proportion of its stocks were down 20% or more since at least the end of 2020, according to Dow Jones Market Data.

That put it on pace for a first since this bull market got started in October 2022. Yet where some people see trouble, others see resilience.

The average person might expect the "wheels would come of the bus," said Chris Galipeau, senior market strategist at Franklin Templeton Institute, pointing to problems with gas and diesel prices, the Iran war and recent credibility issues around the Federal Reserve's commitment to getting inflation down to 2%.

But the economy and corporate earnings both have been more resilient than expected in the first six months of the year, Galipeau said. "It's hard to argue with this story," unless the Fed ends up aggressively raising interest rates and slows the economy down, he added.

Still, the Iran war, 10-year Treasury yields BX:TMUBMUSD10Y near 5% and the Fed's reinvigorated inflation fight play a role in where investors want to put their money right now.

Households are facing $4.5-a-gallon gas and record $6.5-a-gallon diesel, as well as a rising cost of living and higher borrowing costs. Yet a Fed rate hike, or a few hikes, won't likely stop the "hyperscalers" of the AI race from forging ahead.

"It's been this one big process of churn," said Kevin Gordon, head of macroeconomic research and strategy at the Schwab Center for Financial Research. "But that, to me, is the nature of the market this year," he said. "You go through bouts of weakness in sectors and industries, but not all at once."

The roughly 25% surge in the price of global benchmark Brent crude oil (BRN00) to $100 a barrel in the past three months has made the affordability crisis worse for many households. Yet many energy names in the S&P 500 were trading near their all-time highs.

That list includes Marathon Petroleum (MPC), Valero Energy (VLO) and Phillips 66 (PSX), according to Dow Jones Market Data.

It's been "a cautious climbing of a wall of worry," said Gordon.

-Joy Wiltermuth

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(END) Dow Jones Newswires

09-21-26 1619ET