3SPY, RSP : S&P 500 Record Highs Hide A Fracture Unseen In Decades

The S&P 500’s July rally to fresh record highs hides a troubling divide at the index’s core—one not seen since the early 2000s—and no, this time it has nothing to do with Trump’s trade policies.

S&P 500 Hits Records, But Most Stocks Miss The Party

While the SPDR S&P 500 ETF Trust SPY has surged to new record highs, its equal-weighted counterpart, the Invesco S&P 500 Equal Weight ETF RSP, is telling a very different story.

The ratio between SPY and RSP has now climbed to its highest level since August 2003, underscoring the narrowest market breadth in over two decades.

In plain terms, a small group of megacap stocks is carrying the rally, while the average stock is lagging behind.

The median S&P 500 constituent is now 11% below its 52-week high, and RSP is down 3% from its late-2024 peak, despite the cap-weighted index breaking records.

Market breadth refers to the number of stocks participating in a rally. Right now, it’s historically thin. That’s raising eyebrows among investors, not because the bull run is over, but because the gains are concentrated in just a handful of high-performing names.

What’s Going On With Market Breadth?

According to Goldman Sachs’ analyst David J. Kostin, the narrow breadth could set the stage for a short-term shift.

“If our economic and earnings outlooks prove correct, more momentum rotation is likely in store,” Kostin said.

Historical data from Goldman shows that during strong macroeconomic turns, lagging stocks tend to catch up—even if the high-flying leaders cool off.

There’s also an important valuation angle here. Stocks with strong profit margins and solid balance sheets are now trading at significant premiums, while so-called “low quality” stocks remain discounted. If macro conditions improve—meaning lower rates and easing trade tensions—there’s room for a rotation into those underperformers.

Still, Kostin remains cautious. “For ‘low quality’ stocks to outperform over an extended horizon, we think investors would need to embrace an outlook for stronger economic growth and lower interest rates than our current forecasts indicate,” he said.

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Image created using artificial intelligence via Midjourney.