Why Don’t You Just Own the S&P 500?
“Why don’t you just own the S&P 500?” I hear some version of this question all the time. With how the market has performed over the past three years, it seems like an investment strategy that can do no wrong, but that’s exactly why it might be time to revisit that philosophy.
Market Breadth
Since the beginning of the year, I have noticed an overwhelming number of “investment professionals,” “talking heads,” and even individual investors talking about a technical principle called “market breadth.”
Simply put, the breadth of the market is a measure of how many stocks are going up vs. going down in price. This measure helps market technicians like myself understand the market’s internal strength and behavior.
Here is the problem: stock market media faces hear catchy terms like “breadth” and immediately use them to push their agenda, which is typically something fear-based to capture the audience’s attention and keep them coming back for more. The purpose of this post is not to blast the media, but to draw attention to something very important in my research.
Held Up by 20 Stocks
Over the past two months, we have seen the majority of stocks move lower anywhere from 10% to 30%; however, the S&P 500 was only 1% off its all-time high. How can that be?
Well, therein lies the issue. Twenty of the 500 stocks in the S&P 500 are keeping the market afloat while the majority of companies have struggled. This is a prime example of “bad market breadth.”
If you’re a passive investor holding an S&P 500 fund, you’re probably thinking, “Well, I’m in good shape. No need to fix what isn’t broken.” This line of thinking is what creates undue risk, and I will use an example to show you.
The Concentration
The top 20 companies in the S&P 500 make up almost 50% of the weighting of the entire index, meaning the other 480 companies make up the other 50%.
The index is so concentrated that if those 20 companies drop 20% while the other 480 rise 10%, your investment is still down 5%.
In that scenario, market breadth is fantastic. 480 of the 500 companies are moving higher, so the market must be going gangbusters! Wrong. In the current market environment, if the most heavily weighted companies (the top 20 I mentioned) underperform, there is a higher likelihood that the index will drop.
So why am I writing about this, and why is it important right now?
A Bottoming Signal
The media has been hyper-focused on bad market breadth, claiming it will be a precursor to a market meltdown and every stock is going to continue to fall. However, history shows that bad breadth at an extreme level, like we are currently experiencing, has been a bottoming indicator in the market. In other words, when the majority of stocks go down for an extended period, the next move has historically been a rally higher in the broader market.
The chart below displays the New York Stock Exchange Composite Index in the top panel and our breadth indicator in the bottom panel. Over the last three years, I have marked the extreme “bad breadth” conditions, and each one was followed by a market rally. We recently received this signal and have started to see the “broader market” move higher.
Could this time be different? Certainly. No one has a crystal ball, which is why we use a plethora of indicators and keep our finger on the pulse of the market.
The “Broader Market”
I’m wrapping this up, but I put “broader market” in quotes for a reason. Because of the S&P 500 concentration I keep mentioning, there is a chance this breadth indicator could be right, and more stocks could start to move higher than lower, yet you could still see the S&P 500 flatline or even fall.
How? If the 20 stocks that make up 50% of the index aren’t among the companies moving higher, they could pull the S&P 500 down or cause it to move sideways. But if you look under the hood, you could see the majority of stocks begin to outperform the index. This is the OPPOSITE of what has been happening since 2023.
If you want to know why that has been the case, you’ll have to wait for my next post.
The Takeaway
Passive investing in the S&P 500 has been a great strategy over the past three-plus years; however, markets change and adapt.
The strategy that worked from 1996 to 1999 led to steep losses from 2000 to 2002.
The recovery that followed was cut short by the next bear market in 2007 to 2009.
If you passively held the S&P 500 from 2000 through 2012, the index ended roughly where it started, and you experienced a lot of heartburn along the way.
I encourage everyone to understand what their investment strategy is and how it fits with their goals, and to make sure their financial plan is in place. If you have any doubts or questions, give our office a call.
Author: Jake Artz
Published on: 10/16/2026
Important Disclosures: The information presented is provided by Econ Wealth Management for educational and informational purposes only and should not be construed as personalized investment advice or a recommendation to buy, sell, or hold any security or investment strategy. The opinions expressed reflect market conditions and information available as of the date of publication and are subject to change without notice.
Investing involves risk, including the potential loss of principal. Past performance and historical market trends are not guarantees of future results. Technical indicators, including market breadth, may produce inaccurate signals and should not be relied upon independently to predict future market performance. References to market indices are for illustrative purposes only. Indices are unmanaged, cannot be invested in directly, and do not reflect investment management fees, transaction costs, or other expenses. Index performance may differ materially from the performance of an individual investment portfolio.