The S&P 500 Is Rising But Most Stocks Are Falling: What’s Going On?

The Nasdaq 100 is now just days away from its all-time high, but at least one sign suggests that investors should tread carefully. The number of stocks that have driven one of the most-followed indexes is suspiciously narrow. That is, the index has moved up mostly due to a few of the most popular stocks — the artificial intelligence (AI) companies — including those in the Magnificent 7.

Here’s why investors should pay particularly close attention to this “narrow” stock rally.

Nasdaq, S&P 500 rallies are narrow: What it means 

Last week, the Nasdaq 100 stock index hit an all-time high. The index had been powering higher for months, following the market meltdown that ensued after President Donald Trump’s tariff announcement in early April.

Like other major stock indexes such as the Standard & Poor’s 500, the Nasdaq 100 has been enjoying a rather blissful market melt-up. Investors have been anticipating companies posting strong earnings in 2025 and the Fed lowering interest rates, which would help to ease financing. 

But this new all-time high wasn’t a broad-based celebration. In fact, just seven stocks in the index hit their 52-week highs that day, according to Bloomberg, suggesting a problem with this rally that bullish investors may want to pay attention to — what experts call the market’s “narrow breadth.” 

It’s a similar situation in the S&P 500, according to DataTrek Research. Since the market’s April bottom, the index’s top 20 largest stocks have climbed 40.6 percent compared to a total return of 27.9 percent for the index. But this performance means that the 20 largest stocks alone pulled the index higher, while the index’s remaining 480 stocks were actually net negative.  

While investors may be concentrating their bets on key tech stocks such as Nvidia (NVDA), Microsoft (MSFT)and Alphabet (GOOG, GOOGL), which are all big AI plays, it may also be symptomatic of an unhealthy market. In contrast, a broader market would see more stocks hitting highs, as “a rising tide lifts all ships.” 

“The fact that the market breadth has continued to narrow in the latest rally, given rising trade and geopolitical risks, suggests investors see it is a ‘flight to quality’ trade as well,” says Mark McCarron, CFA, chief investment officer at Wescott Financial Advisory Group in Philadelphia.

“A broader market would be more bullish and the fact that it remains narrow suggests that investors may be concerned about weakening economic growth,” says McCarron.

While a broad market is generally more bullish than a narrow one, experts say not to get spooked by a narrowing of the market’s breadth alone. 

“It is important to note that breadth is just one input in a market forecast, and that narrow breadth doesn’t necessarily mean stocks will perform poorly going forward,” says Corbin Grillo, CFA, director of investment strategy, Linscomb Wealth in Houston.

But why are investors turning to AI stocks? They’re the high-quality names of the moment, and they’re also key spots of sustained strength in a tougher economy that’s starting to see cracks.

“Some of the larger stocks in the Nasdaq 100 index are also the stocks perceived to be the biggest beneficiaries from ongoing investment in, and eventually utilization of, AI,” says Grillo.

“Investors see the demand for artificial intelligence as a stable source of earnings growth and therefore, even in a recession, it’s likely that capital expenditures for AI-enabled technology will continue, benefiting firms like Nvidia, Broadcom and Advanced Micro Devices,” says McCarron.

But the narrow breadth in AI stocks also means that if AI doesn’t continue to meet the market’s lofty expectations, then key tech-heavy indexes such as the Nasdaq 100 may be priced too high. 

The Nasdaq 100 is a top-heavy index

The stock market is dominated by big tech companies such as Amazon (AMZN), Microsoft and Apple (AAPL), which is reflected in indexes like the Nasdaq 100, S&P 500 or the Nasdaq Composite. So these stocks are key to how those indexes move anyway. But the fact that just a handful of stocks are driving the market’s performance — and those heavily concentrated in AI-focused areas — is telling. 

The weightings in the Nasdaq 100 are particularly heavily tilted toward tech (according to Slick Charts as of Aug. 19):

1. Nvidia – 14.10%
2. Microsoft – 12.44%
3. Apple – 11.21%
4. Amazon – 7.97%
5. Meta Platforms – 6.20%
6. Broadcom – 4.53%
7. Alphabet Class A – 4.14%
8. Alphabet Class C – 3.88%
9. Tesla – 3.48%
10. Netflix – 1.69%

In total, these 10 stocks make up 69.64 percent — nearly a full 70 percent — of the index’s movement. So this select group of stocks almost has to be doing well for the Nasdaq 100 to fare well. The fact that only a few stocks are hitting 52-week highs as the index does suggest that the strong performance is concentrated in these stocks and mostly not in the index’s 90 others. And with the exceptions of Tesla (TSLA) and Netflix (NFLX), the two smallest on the list, they’re all AI plays, too.

“Historically, market indexes like the S&P 500 and Nasdaq 100 have often been driven by a concentrated number of companies, but with the top 10 constituents of the Nasdaq 100 representing over 50 percent of the index, company-specific risks can dominate,” says McCarron.

For investors, this concentration means that an index may not be nearly as diversified as it may appear to be. So it may be exposed to the performance of relatively few companies. And if those companies are exposed to similar risks — such as a potential slowdown in AI spending — then investors may have a lot more concentrated risk on their hands than it seems at first.

This concentration means investors must bear another risk as part of the AI-driven market, and it means they need to make smart investing moves. 

“It is more important than ever to stay disciplined, diversified, and stick to a long-term strategy,” says Grillo. “It’s natural to want to allocate more to stocks that are generating excitement and that have performed well recently. But there’s no guarantee that the factors that drove outperformance in the past will persist going forward, especially with the increase in valuations.” 

Bottom line

Investors’ focus on the market’s largest, tech-heavy companies creates risks, and this concentration may signal the market is getting ready for a shift. That shift may be down, but it may also be a broadening out of the market to other key areas such as small- and mid-cap stocks. So, while downturns can be unsettling, it’s vital to take a long-term perspective on your investments and try to not get too rattled when stocks get shaken up.