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Equities

A NARROW BULL MARKET IS ALSO A FRAGILE ONE

ADMIN || 5th November 2025

An equity market carried by a handful of megacaps is a market primed for instability, and Tuesday’s price action was proof that a narrow market is also a fragile one.

That was seen on Tuesday, as the Nasdaq 100 slumped as much as 2% in a tech-led selloff that exposed how narrow and brittle the year’s gains have become. The losses were concentrated in familiar names: Nvidia alone accounted for nearly a fifth of the index’s total decline, with Tesla and Palantir following. After weeks of warning signs about deteriorating breadth, we’re now seeing what happens when the so-called “S&P 7” stop carrying the load.

A strong third-quarter earnings season and a narrowing tape can coexist but the mix argues for caution as the rally grows more fragile. When leadership is this concentrated and sentiment this crowded, even a small wobble in the mega-cap growth story or an unexpected macro headwind can trigger outsized moves lower.

Beat rates are historically high, margins are holding up, and median EPS growth looks the best in years; yet market breadth keeps thinning, leadership keeps concentrating, and the number of companies that have touched 52-week lows is uncomfortably large given an S&P 500 near record highs. That divergence says the rally remains dependent on a shrinking cohort of mega-caps, raising drawdown risk if that group stumbles.

We highlight eight observations from the earnings season so far: (1) The frequency of earnings “beats” has been unprecedented outside of the COVID period; (2) Earnings beats have been driven by both sales and margins; (3) Investors are not rewarding most earnings beats; (4) S&P 500 Q3 2025 EPS growth is tracking at 8% year/year, a continued deceleration; (5) Company guidance and analyst earnings revisions have been solid; (6) Mega-cap AI capex spending continues to exceed expectations; (7) Large-cap US companies are increasingly focused on labor efficiency; (8) Bank lending and the corporate credit cycle are under scrutiny.

Coming back to today’s fall, a handful of overextended megacaps that had defined this year’s bullish narrative suddenly became the biggest liability. When leadership narrows to a few crowded names, any stumble becomes systemic.

Market breadth was once again poor, with roughly 2,200 decliners across the Nasdaq Composite, underscoring just howdependent equities have become on a thin band of outperformers. The price action was soft from the open, with little appetite to fade the weakness and almost no intraday bounce a clear sign that dip-buying instincts are failing to shine through.

The AI-fueled gains in megacap tech have masked persistent fragility beneath the surface, and as risk-off sentiment spreads, that imbalance is coming to a head. Tuesday’s slide doesn’t yet signal a wholesale unwind, but it does highlight how little margin for error there is. When the biggest names can no longer lead, the cracks that have been quietly widening all year finally start to show.

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