Investors may want to tread lightly, certain cracks are starting to emerge. Ned Davis Research strategist Ed Clissold pointed out that his firm’s multicap advance/decline line, which gauges the number of stocks that rose in a day minus those that fell, last peaked on April 20. This comes despite the Dow Jones Industrial Average , S & P 500 and Nasdaq Composite hitting multiple record highs since then. Clissold also noted that just five of the 11 S & P 500 sectors have made new highs since March 30. “Most divergences resolve themselves to the upside. After a period of consolidation, both popular averages and breadth both break out to new highs. However, almost all cyclical tops are preceded by divergences, so they should not be ignored,” wrote Clissold, the firm’s chief U.S. equity strategist. “If the divergences do not clear upon a summer rally, a bigger fall correction is more likely.” To be sure, the rally has shown signs of broadening. The equal weighted version of the S & P 500 is up 9.3% in 2026, roughly matching its market cap-weighted counterpart. Small caps are also doing well, with the Russell 2000 soaring 20% year to date. That said, the strength seen in momentum stocks — many of which are tied to the artificial intelligence trade — far outpaces the rest of the market. The iShares MSCI USA Momentum Factor ETF (MTUM) has jumped 35% this year, driving its relative performance to the equal weight S & P 500 past the peaks seen in 2020 to all-time highs. “What is clear is that we are due for a substantial pullback in momentum as a factor, although the catalyst for this is unknown at this time. Equity markets have been very shaky historically around these levels of momentum outperformance, although usually it takes earnings expectations to begin rolling over, which we clearly are not seeing right now,” wrote Tavis McCourt, strategist at Raymond James. Jim Paulsen, former chief investment strategist at Leuthold Group, also raised concern of a potential pullback in the near term. “All seasoned investors have lived through times when the market appeared overextended only for stock prices to become even more expensive. It would not be shocking if the contemporary AI-induced stock market run continues higher in the coming months. Nonetheless, given the warning signs I am now monitoring, investors should give some consideration to adopting a slightly more bearish portfolio tilt for the foreseeable future.”
Watch out: Short-term cracks are starting to develop in the stock market
Jun 22, 2026
