US stock markets have consistently lacked breadth over the last few weeks, entering 2025 with notable divergences. Gains are focused on large mega-corporations, supporting capitalisation-weighted indices.
The Nasdaq 100 is the best-performing index but is over-concentrated in a few stocks; the magnificent seven and Broadcom comprise nearly 50% of its weight. The S&P 500, another strong performer (trading over 5% below its 200-day simple moving average (SMA)), also has high concentration, with its top 10 companies accounting for over 40% of the index.
Indices that include smaller companies and aren't weighted by capitalisation have struggled the most, with the Dow Jones and the Russell 2000 trading within 5% of their 200-day SMAs. Price oscillators show overselling, particularly in the Russell 2000, reflecting weaker performance among smaller-cap stocks.
It’s unusual to see the current mean reversion in major indices during the stock market’s historically strong period; December (with its "Christmas rally"), January and February typically show positive trends, driven by factors like tax-related contributions to investment funds and a surplus of cash from bonuses and year-end payments.
This poor performance in a seasonally positive phase is sending stock market indices near December lows: 2,188 for the Russell 2000, 42,060 for the Dow, 20,742 for the Nasdaq 100, and 5 801 for the S&P 500. Failing to hold above these levels during the typically strong first quarter could signal market weakness and the potential for a sideways trend, according to figures from the Stock Trader's Almanac.
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