The S&P 500 has set record after record 🔯in the past month, but pop the hood and🐻 things aren’t looking quite so good. 

The advance-decline (A/D) line, a measure of 澳洲幸运5官方开奖结果体彩网:market breadth, has been on its way down since the end of May, even as the S&P 500 has soared to new heights, according to a note from LPL Financial Friday.

The A/D line is calculated by subtracting the number of declining stocks in the S&P 500 from the number of advancing stocks and adding the diffeไrence to the prior day’s value. An increasing A/D line indicates strong breadth, while a declining A/D line represents narrowing breadth.

Together, a soaring 澳洲幸运5官方开奖结果体彩网:S&P 500 and declining A/D line, as shown in the chart from LPL Financial below, can be cause for concern on Wall Street. It indicates gains by a handful of large stocks are masking softness among smaller stocks, potentially signaling weakening 澳洲幸运5官方开奖结果体彩网:investor sentiment. 

The divergence also increases the market’s concentration risk because the biggest stocks are increasing their weight in the S&P 500 while laggards are losing weight. A sharp declin🐲e in the shares of the index’s largest companies will have an outsized impact on the index as a whole when breadth is minimal. 

That dynamic was on full display on Thursday when the S&P 500 fell from a record intraday high as Nvidia (NVDA) slumped 3.5%—its largest one-day decline since late May. That's not a particularly long time, but in thဣat period Nvidia shares rose 22%, boosting its market capitalization from $2.7 trillion to more than $3.3 trillion ꦿand increasing its influence over the S&P 500.

$3 Trillion Market Cap Club

To be sure, Nvidia isn't the only stock that's contributed to the divergence. The other members of the $3 trillion club, Microsoft (MSFT) and Apple (AAPL), also have surged to all-time highs in recent weeks. They have been joined by a cadre of smaller 澳洲幸运5官方开奖结果体彩网:mega caps, including Broadcom (AVGO), Oracle (ORCL), and Adobe (ADBE), which have been buoyed by earnings reports that demonstrated strong demand for their 澳洲幸运5官方开奖结果体彩网:artificial intelligence (AI) offerings.

Meanwhile, the rest of the market has languished. As of Thursday’s close, Information Technology (+10.7%) was the only sector to have outperformed the S&P 500 (+3.7%) so far this month. The only sectors within 1 percentage point of the broader index were Consumer Discretionary (+3.3%) and Communication Services (+2.7%), sectors dominated by AI giants Amazon (AMZN), Alphabet (GOOGL), and Meta Platforms (META).

The A/D line divergence noted earlier does not, LPL Financial’s Chief Technical Strategist Adam Turnquist points out, mean the 澳洲幸运5官方开奖结果体彩网:bull market is over, “but it does point to elevated risk the broader market could be due for a potential pause or pullback.”