The stock market is near all-time highs but only a few stocks are driving it — Investors should be wary

Wed, Aug 20, 2025, 9:11 AM 6 min read

The Nasdaq 100 is now just days away from its all-time high, but at least one sign suggests that investors should tread carefully. The number of stocks that have driven one of the most-followed indexes is suspiciously narrow. That is, the index has moved up mostly due to a few of the most popular stocks — the artificial intelligence (AI) companies — including those in the Magnificent 7.

Here’s why investors should pay particularly close attention to this “narrow” stock rally.

Last week, the Nasdaq 100 stock index hit an all-time high. The index had been powering higher for months, following the market meltdown that ensued after President Donald Trump’s tariff announcement in early April.

Like other major stock indexes such as the Standard & Poor’s 500, the Nasdaq 100 has been enjoying a rather blissful market melt-up. Investors have been anticipating companies posting strong earnings in 2025 and the Fed lowering interest rates, which would help to ease financing.

But this new all-time high wasn’t a broad-based celebration. In fact, just seven stocks in the index hit their 52-week highs that day, according to Bloomberg, suggesting a problem with this rally that bullish investors may want to pay attention to — what experts call the market’s “narrow breadth.”

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It’s a similar situation in the S&P 500, according to DataTrek Research. Since the market’s April bottom, the index’s top 20 largest stocks have climbed 40.6 percent compared to a total return of 27.9 percent for the index. But this performance means that the 20 largest stocks alone pulled the index higher, while the index’s remaining 480 stocks were actually net negative.

While investors may be concentrating their bets on key tech stocks such as Nvidia (NVDA), Microsoft (MSFT)and Alphabet (GOOG, GOOGL), which are all big AI plays, it may also be symptomatic of an unhealthy market. In contrast, a broader market would see more stocks hitting highs, as “a rising tide lifts all ships.”

“The fact that the market breadth has continued to narrow in the latest rally, given rising trade and geopolitical risks, suggests investors see it is a ‘flight to quality’ trade as well,” says Mark McCarron, CFA, chief investment officer at Wescott Financial Advisory Group in Philadelphia.

A flight to quality trade happens when investors begin to get more defensive and risk-averse, buying stocks that they perceive as higher-quality and avoiding low-quality ones. It’s typical of a market that is seeking safety as some investors bail out, and may presage a market drop.