The US stock market is showing two very different pictures. The S&P 500 is close to a record high, but more than half of the companies in the broader US stock market have suffered sharp losses. This means the index looks strong even as many individual stocks struggle.
More than half of US stocks have fallen at least 20%. Data from Morgan Stanley show that 54% of companies in the Russell 3000 index have dropped at least 20% from their June 2026 highs. The Russell 3000 tracks a broad range of US companies.
US stocks fall 20% from June highs
Many companies have suffered even bigger losses. Almost 90% of Russell 3000 companies have fallen more than 10% from their June highs. Around 29% have lost more than 30% of their value, while 7% have fallen by more than 50%, according to Morgan Stanley's figures cited by Forbes.
Why is the S&P 500 near a record high?
The S&P 500 does not show how every stock is performing. The index tracks 500 leading US companies and gives more weight to companies with larger market values. As a result, a small group of very large companies can push the index higher even when hundreds of other stocks are falling.
Fewer US stocks are supporting the rally
{{/usCountry}}Fewer US stocks are supporting the rally
{{/usCountry}}Fewer S&P 500 companies are trading above their long-term trend. Mike Wilson of Morgan Stanley said the share of S&P 500 companies trading above their 200-day moving averages has fallen from around 75% to below 50%. A 200-day moving average tracks a stock's average price over roughly 200 trading days and helps investors assess its longer-term direction.
The index has not fully reflected the weakness underneath it. Although fewer companies are trading above their long-term averages, the S&P 500 has remained close to a record because its largest members have continued to perform strongly. This shows that the market's gains are becoming concentrated in a smaller group of companies.
This narrowing market could be a warning sign. A market rally supported by only a few large stocks can continue for months without an immediate crash. However, the gap could eventually close in one of two ways: struggling stocks could recover, or the large companies supporting the index could begin falling
Higher interest rates put pressure on stocks
Rising bond market volatility could put more pressure on stocks. Wilson believes continued volatility in the bond market could lead to a 5% to 10% decline in the S&P 500. However, this is his outlook, not a confirmed prediction that the index will fall by that amount.
Investors are also questioning the returns from AI spending. Some companies have invested enormous amounts of money in artificial intelligence. Investors are increasingly questioning whether these investments will generate enough profit to justify their costs. Companies whose valuations depend on high growth expectations could face pressure if those expectations are not met.
Some companies still have strong earnings despite falling share prices. Morgan Stanley said earnings growth for the median company remains in the mid-teens. Analysts are also raising more earnings estimates than they are cutting. This creates a gap between companies' reported business outlooks and the sharp declines in their share prices, according to Forbes.
Why are investors selling US stocks?
Falling stocks can also face pressure from investors who are forced to sell. Portfolio managers whose investments are losing money may face pressure from clients. Some investors may withdraw money from funds, forcing managers to sell shares to meet those withdrawals. Risk-management systems may also require funds to reduce their exposure when market volatility rises.
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Money can flow towards the same large companies that are already supporting the index. Investors may move money into index funds, which invest according to the companies and weights in a particular index. This can direct more investment towards the largest companies while struggling stocks receive less support. Such flows can widen the gap between the S&P 500 and the broader market.
What could help falling stocks recover?
Morgan Stanley sees possible opportunities in industrial stocks. The bank sees attractive risk and reward in some quality industrial companies whose share prices have weakened even though their earnings expectations remain reasonably strong. These businesses may have been hurt by higher interest rates, concerns about economic growth and investors favouring large technology companies, according to Forbes.
The performance of the biggest stocks remains a major risk. A small number of large companies are helping the S&P 500 stay close to its record. If these companies fail to meet investors' expectations, their share prices could fall and put pressure on the entire index. The narrower the market's leadership becomes, the more the index depends on those companies.
What happens next for the US stock market?
The next move will depend partly on bond markets and company earnings. If bond market ups and downs become less severe and companies continue to report good earnings, investors may start buying stocks that have fallen sharply. This could help more stocks rise without the S&P 500 falling sharply. However, if interest rates keep rising or companies expect lower earnings, even the big companies supporting the S&P 500 could see their share prices fall.
The main concern is the growing gap between the S&P 500 and the wider US stock market. The S&P 500 is close to a record high, but this does not mean most US stocks are doing well. Morgan Stanley's data shows that 54% of companies in the Russell 3000 index have fallen at least 20% from their June highs. The big question now is whether these stocks will recover or whether the fall will spread to the large companies keeping the S&P 500 near its record high.