The Newest History-Making Moment for the S&P 500 Can Serve as a Dire Warning for Wall Street and Investors

Volatility is the price of admission investors pay for access to the world's greatest long-term wealth creator, the stock market. While other asset classes have produced nominal gains over time, none have come close to matching the long-term average annual return of stocks.

In early April, shortly after President Donald Trump unveiled his tariff and trade policy, the benchmark S&P 500 (SNPINDEX: ^GSPC) and widely followed Dow Jones Industrial Average (DJINDICES: ^DJI) plunged into a full-blown correction, while the growth stock-propelled Nasdaq Composite (NASDAQINDEX: ^IXIC) entered (briefly) into a bear market. Seven months later, all three major indexes have respectively logged multiple record-closing highs.

Image source: Getty Images.

History-making moments have been common on Wall Street in 2025 -- but they're not always good news for the stock market or investors. The latest "first" for the broad-based S&P 500 can serve as a dire warning of what's to come.

We just witnessed history for the S&P 500 (and investors should be concerned)

Let me preface the following discussion with an important point: Wall Street's major stock indexes tend to rise in value over time. Although getting from Point A to B doesn't happen in a straight line, the U.S. economy and corporate earnings grow over long periods, which is fantastic news for long-term-minded investors.

In between Points A and B are where we find these occasional hiccups that result in stock market corrections, bear markets, and elevator-down moves.

On Oct. 28, when the S&P 500 clawed its way to its all-time closing high of 6,890.89, it made dubious history.

Today was the S&P's worst breadth day ever for an "up" day.

Since 1990, the S&P has never had weaker breadth on a day that it closed positive.

The index closed up 0.23% with a net advance/decline line of -294. There were 104 stocks up and 398 down.

🤮 pic.twitter.com/thXPgEkOFc

-- Bespoke (@bespokeinvest) October 28, 2025

As you'll note in the post above on X (formerly Twitter) from Bespoke Investment Group, the benchmark index produced its worst-ever market breadth -- a comparison of advancing stocks versus declining stocks as a whole, or within an index -- on a day where it finished higher, with data going back to 1990. Just 104 of the S&P 500's components finished in the green, with 398 members of the index declining, which works out to a net advance/decline of -294. Note: some members of the S&P 500 have more than one class of stock, thus why the number of components adds up to more than 500.

What this history-making market breadth tells us is that a small number of companies has been responsible for pushing the broader market higher.

Specifically, the "Magnificent Seven," and core members of the artificial intelligence (AI) revolution, have provided the rocket fuel that's launched the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average to new heights. While it's easy to assume that most stocks are doing well as the S&P 500 chalks up new highs, the Invesco S&P 500 Equal Weight ETF paints a different picture.

Equal Weight S&P 500 now underperforming the Market Cap Weighted S&P 500 $SPX by the largest margin in more than 22 years 🚨🤯👀 pic.twitter.com/4nnG8oS3xN

-- Barchart (@Barchart) October 29, 2025

Investors would have to go back to early 2003 to find the last time the equal-weighted S&P 500 -- i.e., all components having equal influence in the index, as opposed to the current setup, which is market cap-weighted -- was underperforming the benchmark S&P 500 by as much as it is now.

While the argument can be made that the high-growth rates of the Mag 7, coupled with the sky-high addressable opportunity presented by the evolution of AI, can sustain this disparity, history hasn't been kind to scenarios like this.

This isn't to say that a small group of companies can't lift the broader market. Rather, it's to point out that relying on a small subset of market leaders to lift the tide rarely proves sustainable over an extended period, as we saw when the dot-com bubble burst.

Wall Street appears highly susceptible to a bubble-bursting event

There's little question that AI has been the primary catalyst for the stock market. With the analysts at PwC forecasting a $15.7 trillion global opportunity for this technology by 2030, it's easy to understand why investors are so excited about the demand for Nvidia's hardware, Broadcom's networking solutions, and the practical application of generative AI and/or large language models by the likes of Meta Platforms and Amazon.

But Wall Street's reliance on a small percentage of S&P 500 components to lift the tide presumably leaves the stock market highly susceptible to a bubble-bursting event (i.e., those aforementioned elevator-down moves).

Image source: Getty Images.

Although history can't guarantee what's to come, it does have an uncanny ability, in certain situations, to forecast the future. This is particularly evident when it comes to game-changing innovations and hyped trends on Wall Street.

Roughly three decades ago, the internet became a mainstream tool for businesses and the public. It opened new sales channels for companies and kicked off the retail investor revolution by breaking down information barriers that had previously existed between Wall Street and Main Street.

However, the internet, like every other hyped technology and innovation that's followed its proliferation, has needed plenty of time to mature. This is to say there's a learning curve for businesses when a new technology enters the scene -- and investors regularly overestimate how long it'll take for broad-based adoption, utility, and optimization to take place.

While we're observing plenty of demand for AI hardware, businesses haven't yet optimized AI solutions to maximize profits. It's not even clear at this point if a majority of AI-inspired businesses are generating a profit from their investments. In other words, there isn't any evidence that suggests artificial intelligence will avoid the same bubble-bursting fate as other next-big-thing trends that came before it, such as the internet, genome decoding, nanotechnology, 3D printing, blockchain technology, and the metaverse.

Arguably no companies would be hit harder by a future bursting of the AI bubble than the Magnificent Seven, which have feasted on AI spending figures and lofty growth targets from Wall Street analysts.

The S&P 500's dubious market breadth serves as a warning that the stock market is nowhere near as healthy as it appears, and that the proverbial rug can be pulled out from beneath investors at any moment.

Sean Williams has positions in Amazon and Meta Platforms. The Motley Fool has positions in and recommends Amazon, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.