---
title: "A Bear Inside the Bull"
source: https://www.perissosprivatewealth.com/insights/a-bear-inside-the-bull
publisher: Perissos Private Wealth Management
published: 2026-10-16T21:30:00+00:00
updated: 2026-10-16T18:47:08.889378+00:00
topics: S&P 500 market breadth warning signs, narrow market rally risk, stock market breadth divergence, AI-driven market concentration, bear market beneath the index
license: Educational content. Cite with attribution. Not personalized financial, tax, or legal advice.
---

# A Bear Inside the Bull

## Quick answer

A stock index can reach record highs even when the average stock is weakening, and that divergence is often measured through market breadth. When most S&P 500 members are already down 10% to 20% from their highs, history suggests the rally may be increasingly dependent on a small group of leaders.

## Key takeaways

- On October 6, 2026, the S&P 500 closed at 7,818.93, a new all-time high, yet 80.7% of its members were more than 10% below their own highs.
- At that same October 6, 2026 record, 54.9% of S&P 500 members were more than 20% below their highs, meaning more than half the index was already in a bear market by that measure.
- The median S&P 500 stock was 22.3% below its high on October 6, 2026, compared with 14.9% at the 2007 peak and 7.7% at the February 2020 peak.
- Between June 30, 1999 and May 16, 2000, the Federal Reserve raised its target rate six times to 6.50%, while the Nasdaq still climbed 83.8% from September 1999 to March 10, 2000.
- The Nasdaq later closed at 1,114.11 on October 9, 2002, which was 77.9% below its March 2000 level.

*The S&P 500 keeps setting records while most of its members have quietly slipped into corrections. Here is why that matters.*

 

 

October 16, 2026

FOR INFORMATIONAL PURPOSES ONLY

 

 **On October 6th, the S&P 500 closed at 7,818.93, a new all-time high. 2 Through October 15th the index was up 13.1% for the year and sat about 1% below that record. 2 By the headline number, this is a healthy bull market. Look underneath it, though, and the picture changes. On that same record day, 80.7% of the stocks in the index were more than 10% below their own highs, and 54.9% were more than 20% below them. 1 In other words, more than half of the S&P 500 was in a bear market of its own while the index celebrated a record. That kind of split is rare. In our breadth work going back to the 1990s, the only market top that looked worse underneath was 2000. 1 I don't think that comparison should be dismissed, and I also don't think it should be overstated. Breadth tells you about the health of a rally, not the date it ends. This memo walks through what the breadth data is saying, how the same pattern played out in the late 1990s, what is driving the gap between the index and the average stock today, and what we are doing about it. ## Record Highs, Fewer Participants Market breadth simply asks how many stocks are taking part in a move. A rally carried by most of the index is sturdy; a rally carried by a few large companies is fragile, because it depends on those few continuing to do the heavy lifting. Our team rebuilt the S&P 500's membership at each point in time and measured how far every member sat below its own rolling ten-year closing high. 1 That lets us compare today's record against earlier records on equal footing. Figure 1 shows the results at selected market peaks. At the record highs from 2007 through 2022, an average of 29.6% of members were more than 20% below their highs, and an average of 50.1% were more than 10% below. 1 Those are normal readings for a bull market, since some industries are always out of favor. Today's numbers are well outside that range. On October 6th, 80.7% of members were in a correction and 54.9% were in a bear market. 1 The day after, those shares rose to 83.3% (419 of 503 members) and 56.1% (282 of 503). 1 The only peak in our data with a higher share of stocks in correction was March 24, 2000, at 82.8%. 1 Figure 1: Share of S&P 500 members more than 10% and 20% below their highs at selected market peaks Figure 2 looks at the same question a different way: how far the typical stock has fallen. At the October 6th record, the median S&P 500 member was 22.3% below its high, and 14.1% of members were down by half or more. 1 At the 2007 peak, the median member was 14.9% below its high; at the February 2020 peak, it was 7.7% below. 1 Only the 2000 top shows a deeper median drawdown at a market high: 33.1% in March and 30.2% at a secondary high that September. 1 Figure 2: Median S&P 500 member's distance below its high at selected market peaks One caution on the 2000 figures. Price history from that era is incomplete, so the 2000 readings are based on roughly half of the index's members at the time — 256 of 499. 1 The direction is clear, but I'd treat the exact 2000 numbers as approximate. For context, imagine judging the health of a neighborhood by the value of its three biggest houses. If those three keep appreciating, the average looks great, even if most of the street is quietly falling into disrepair. The index is the average. Breadth is the walk down the street. ## We Have Seen This Pattern Before Let's look at the late 1990s, because the shape of that market is instructive. After the summer 1998 sell-off, the market recovered and pushed to new highs, but participation never fully came back. 1 In July 1998, 26.6% of members were more than 20% below their highs. By July 1999, at another market high, that share had risen to 39.0%. By March 2000 it was 71.9%. 1 Every new high left more stocks behind. Rising interest rates did not stop the advance either. The Federal Reserve raised its federal funds target six times between June 30, 1999 and May 16, 2000, lifting it to 6.50% by May 2000. 3 Over roughly the same stretch, the Nasdaq Composite climbed from 2,746.16 at the end of September 1999 to 5,048.62 on March 10, 2000, a gain of 83.8%. 4 The warning signs were there, and investors looked past them. By October 9, 2002, the Nasdaq had closed at 1,114.11, 77.9% below its March 2000 level. 4 I find it useful to think of the end of a bull market as moving through something like the stages of grief. Denial comes first: the headlines are positive, the index keeps making records, and the deterioration underneath is explained away. Anger follows — the sharp drops and equally sharp rallies of an early bear market. Then comes bargaining, when investors start hunting for bargains among the fallen and convincing themselves the worst is over. The market top is made during denial, which is exactly when breadth quietly breaks down. The 2000 experience is not the only example. At the October 2007 peak, 41.6% of S&P 500 members were already more than 20% below their highs, well above the norm for a healthy bull. 1 The takeaway: weak breadth at a record high has historically been a sign that the advance was running on fewer and fewer engines. ## What Is Driving the Divergence The gap between the index and the average stock comes down to one theme: artificial intelligence. A small group of very large technology platforms has been spending at a scale that has few precedents. Wall Street estimates cited by the Financial Times put the largest U.S. AI hyperscalers on track for about $800 billion of capital spending in 2026, with consensus expecting roughly $1.1 trillion in 2027. 5 The same estimates suggest those companies need annual AI revenues of roughly $300 billion within the next few years just to break even on that investment. In the second quarter of 2026, their cloud revenues were running about $70 billion a year above the pre-AI trend. 5 Revenues are growing quickly, but they need to grow a great deal more. The broader buildout is even larger. Research by Columbia Business School's Stijn Van Nieuwerburgh estimates that cumulative spending on AI data centers could exceed $10 trillion from 2025 through 2032, equivalent to 3.6% of GDP each year — a larger capital surge than the canals, railroads, electrification or the internet in their eras. 5 I don't doubt the technology is real. My concern is that this spending does not yet have a clear economic endpoint, and I am wary of the idea that record capital spending is itself proof the cycle has room to run. How that spending is financed matters too. The Financial Times notes that the scale of the buildout is now transforming debt markets. 5 That makes the health of the lenders worth watching. The Federal Reserve's May 2026 Financial Stability Report notes that life insurers have steadily increased their investments in risky and illiquid assets over the past decade, contributing to the growth of private credit, while leverage at large life insurers remained elevated. 6 Over the past year, private credit has dealt with high-profile defaults, markdowns on software loans and redemption caps at major funds. 7 A recent Deloitte survey of fund groups concluded that private credit valuation practices "need to become more dynamic." 7 When valuations update slowly, problems tend to surface all at once rather than gradually. Then there are interest rates. Figure 3 shows the S&P 500 alongside the 10-year Treasury yield this year. The 10-year yield ended 2025 at 4.18%, touched 5.31% on October 5th, and stood at 5.10% on October 15th; the 30-year yield moved from 4.84% to 5.43% over the same period. 8 Why does that matter? Long-lived projects financed with debt are very sensitive to long-term rates. Higher yields raise the hurdle every one of those data centers has to clear, and they squeeze the financing structures that support them. Stocks have so far shrugged this off, much as they did in 1999. Figure 3: S&P 500 and the 10-year Treasury yield, month-end values, 2026 ## What It Means, and What It Doesn't I want to be careful here. Breadth is a measure of health, not a timing tool. In 1999 and early 2000, the index kept rising for months while breadth deteriorated, and the market can go to levels and valuations it has never reached before. No one can call a top, and I won't try. The question is whether the reward for staying fully exposed to the market's narrow leadership still justifies the risk. In my view, it no longer does to the same degree. There is a more constructive side to this as well. If more than half of the index is already in a bear market, a great deal of pessimism is already priced into a large number of companies. If capital eventually rotates out of the crowded AI trade, much of it has to go somewhere, and stocks that have been left behind are a natural destination. I would expect that process to be uneven. In the early stages of a broad repricing, even good companies that are already down tend to get hurt. Patience and selectivity will matter. What does this mean for your portfolio? It means discipline rather than prediction. Our Adaptive Allocation process is built for exactly this kind of environment. It uses regime detection to assess whether the market is in a bullish or bearish state, and dynamic beta targeting to adjust how much market risk portfolios carry as conditions change. A market making new highs on deteriorating internals is the kind of signal that process is designed to respect rather than ignore. With all of this in mind, we have reduced portfolio exposure to technology and growth stocks. The index may well push higher from here, and we are not making a bet on the exact timing of a top. But when more than 80% of the S&P 500 is in a correction while a narrow group of companies carries the index to new records, the most crowded part of the market is where I believe the risk is greatest. Our team will continue monitoring breadth, interest rates and credit conditions closely, and we will adjust as the evidence changes.** 

*All my best,*

**Brandon VanLandingham, CFA, CMT, CFP**

Founder / CIO

 

## Citations

 

1. Perissos Private Wealth Management, Market Breadth at Peaks and Lows and All-Time Highs and Market Breadth (October 2026), calculated from [Financial Modeling Prep](https://financialmodelingprep.com/) price and membership history with latest membership corrected from [S&P Dow Jones Indices](https://www.spglobal.com/spdji/en/indices/equity/sp-500/); data through October 7, 2026. Members measured against rolling ten-year closing highs; price return excludes dividends.

2. [Financial Modeling Prep, S&P 500 Index historical daily closes](https://financialmodelingprep.com/), retrieved October 16, 2026. Year-to-date and from-record changes calculated by Perissos.

3. [Board of Governors of the Federal Reserve System, Open Market Operations Archive](https://www.federalreserve.gov/monetarypolicy/openmarket_archive.htm), retrieved October 16, 2026.

4. [Financial Modeling Prep, Nasdaq Composite Index historical daily closes](https://financialmodelingprep.com/), retrieved October 16, 2026. Percentage changes calculated by Perissos.

5. [Financial Times, "What is the AI capex breakeven rate?" (September 28, 2026)](https://www.ft.com/content/f83b44e9-406b-4004-9fdb-83357c3ac977)

6. [Board of Governors of the Federal Reserve System, Financial Stability Report, May 2026, Section 3: Leverage in the Financial Sector](https://www.federalreserve.gov/publications/2026-may-financial-stability-report-leverage.htm)

7. [Alternative Credit Investor, "Private credit growth piles pressure on valuations" (October 9, 2026)](https://alternativecreditinvestor.com/2026/10/09/private-credit-growth-piles-pressure-on-valuations/)

8. [Financial Modeling Prep, U.S. Treasury rates](https://financialmodelingprep.com/), retrieved October 16, 2026.

 

## Important Disclosures

 

 

Perissos Private Wealth Management is a Registered Investment Adviser ("RIA"). Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Perissos Private Wealth Management renders individualized investment advice to persons in a particular state only after complying with the state's regulatory requirements, or pursuant to an applicable state exemption or exclusion. All investments carry risk, and no investment strategy can guarantee a profit or protect from loss of capital. Past performance is not indicative of future results.

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## Frequently asked questions

### What does weak market breadth mean when the S&P 500 hits a record?

Weak breadth means fewer stocks are participating in the rally, even if the index reaches a new high. In the post, more than 80% of S&P 500 members were over 10% below their highs on October 6, 2026.

### Why compare current breadth conditions to 2000 or 2007?

Those periods also showed narrowing participation before major market declines. The post notes that the only weaker breadth reading at a market top in its data set was March 2000, while October 2007 was also unusually weak.

### What is driving the gap between the index and the average stock?

The post points to heavy concentration in a small group of large technology companies tied to AI spending. It also notes that financing conditions, credit markets, and rising rates can matter when leadership narrows.

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Source: [Perissos Private Wealth Management](https://www.perissosprivatewealth.com/insights/a-bear-inside-the-bull) — fee-only fiduciary wealth management in Bethany, Oklahoma. 405.212.9690.

This article is educational and is not personalized financial, tax, legal, or investment advice.