The S & P 500 is only about 1% below its August all-time high, but September was a much rougher month beneath the surface. About three-quarters of the stocks in the benchmark index fell this month, highlighting how narrow market leadership has become as investors crowd back into some of the biggest names. Gains in several of the index’s largest companies, such as Apple , Nvidia , Alphabe t, Microsoft and Meta Platforms helped mask weakness in the majority of stocks. “Market breadth … is really starting to narrow, and it’s really narrowing into those kind of higher quality names that are a larger part of the index,” Chris Toomey, Morgan Stanley managing director of private wealth management, said on CNBC’s “Closing Bell” on Tuesday. Investors appear to be getting more defensive and moving away from higher-beta stocks that had previously led the market, Toomey said. Still, the median S & P 500 stock is generating earnings growth of more than 15%, he said. Investors are ” just being more defensive in getting out of those other names,” Toomey said. In a report on Monday, Morgan Stanley analysts said that the share of S & P 500 stocks trading above their 200-day moving average recently fell to 49% from roughly 75% during the summer. “Our stronger earnings plus lower multiples narrative for 2026 tells the story,” according to a group of five strategists led by Michael Wilson. Breadth was improving over the summer even as crude oil prices and bond yields moved higher, but a reversal came after Fed Chair Kevin Warsh’s address at Jackson Hole in late August led markets to price in more hawkish central bank policy. “However, the divergence between the index and breadth must be reconciled. We lean toward a meeting in the middle if the bond volatility doesn’t calm down,” Wilson said. “Stick with large cap quality and add to riskier stocks in October.”
