The US stock market is showing signs of a broader recovery beneath the recent technology selloff, with improving market breadth suggesting that gains are beginning to spread beyond the handful of large companies that have driven the S&P 500’s advance this year.
JPMorgan Private Bank has identified the improvement as a potentially bullish signal, arguing that a wider participation in the market’s gains could support further advances over the coming months, even as concerns about artificial intelligence spending continue to weigh on technology shares.
In a recent note, strategists at the bank pointed to the proportion of S&P 500 companies reaching new 20-day highs, which has climbed above 50%. It is the first time the measure has reached that level since the second quarter of 2025, when US equities were recovering from a sharp selloff triggered by tariff concerns.
Register for the next Tekedia Mini-MBA.
Register for Tekedia AI in Business Masterclass.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Market breadth measures how widely gains and losses are distributed across an index. When a small group of heavyweight companies drives an index higher while most constituents struggle, the market is considered narrow. A rising proportion of stocks participating in the advance can indicate that investor demand is spreading across more sectors and companies.
For much of this year, the S&P 500’s performance has been heavily concentrated in a relatively small number of large technology and AI-related companies. The latest improvement suggests that participation is broadening, potentially giving the index a more stable foundation for further gains.
JPMorgan said historical periods featuring a comparable improvement in breadth have generally been followed by stronger market performance over the subsequent three and six months. The bank recently raised its year-end S&P 500 target to 8,000, implying approximately 5% upside from the index’s prevailing level.
“Despite a crowded risk calendar, breadth and historical outperformance sets the US stock market up for outsized returns after the midterm elections,” Kriti Gupta, an executive director and global investment strategist in JPMorgan’s private bank arm, and Nick Roberts, a portfolio manager at the bank, wrote in a note on Friday.
The assessment offers a more constructive outlook at a time when investors are reassessing the valuation and spending assumptions behind the AI boom. However, improving breadth is a market signal rather than a guarantee that the recent selloff has ended.
The technology sector has faced several rounds of selling as investors question the financial returns from the enormous capital commitments being made by major technology companies.
The concerns operate in two directions. Investors worry that hyperscalers could be spending too aggressively on data centers, chips and other AI infrastructure without generating sufficient returns. At the same time, any reduction in those commitments could hurt semiconductor manufacturers, cloud infrastructure providers and other suppliers that have benefited from the expansion.
The market’s earlier weakness in breadth provided an indication that the rally was becoming increasingly concentrated. Several weeks ago, the S&P 500 was trading near record levels even as more than 80% of its constituent stocks had entered correction territory, generally defined as a decline of at least 10% from a recent high.
That divergence suggested that the headline index was masking deterioration across much of the market. The latest increase in stocks reaching new short-term highs points to a change in that pattern, although the sustainability of the improvement hinges on the continued participation from companies outside the largest technology names.
Friday’s trading showed that pressure on the AI trade remained significant. Amazon and Intel shares came under pressure following their latest earnings reports, as both companies indicated that capital expenditure would increase next year despite negative cash flow.
The announcements reinforced investor concerns about the relationship between AI infrastructure spending and near-term financial returns. For companies building data centers and supplying computing equipment, sustained investment by hyperscalers remains an important source of expected revenue. But rising expenditure also increases financing requirements and raises questions about how quickly those investments can translate into cash generation.
The Nasdaq Composite was down approximately 8% from its October peak, while the iShares Semiconductor ETF had fallen 28% from its 2026 high. The Roundhill Neocloud ETF, which tracks companies providing specialized cloud and AI computing infrastructure, had declined 43% from its latest peak.
These losses illustrate how sharply sentiment has shifted towards parts of the AI investment chain. Companies exposed to semiconductor manufacturing, specialized computing and data-center infrastructure have faced particular pressure as investors reassess valuations and the pace of future spending.
Midterm Elections Offer Another Potential Catalyst
JPMorgan’s outlook also considers the historical performance of US equities following congressional midterm elections, which have often been followed by periods of stronger market returns.
An analysis by BlackRock found that the S&P 500 gained an average of 14% in the six months after midterm elections dating back to 1970. The pattern has encouraged investors to examine whether the approaching election could mark a turning point for market sentiment after months of political and economic uncertainty.
However, historical averages do not establish that the same outcome will occur in 2026. Market performance will also be shaped by corporate earnings, inflation, interest rates, geopolitical developments, and the financial returns from AI investment.
The current environment presents competing forces. Improving breadth suggests that demand is spreading across more companies, while technology-sector weakness shows that investors remain concerned about the cost and profitability of the AI expansion.
For the S&P 500, the distinction matters because a rally supported by a wider range of companies may prove more resilient than one driven by a handful of heavily weighted stocks. If broader participation continues, gains in industrials, financials, consumer companies, and other sectors could help offset weakness in technology.
But the market still needs evidence that earnings growth can support valuations as financing costs and capital expenditure rise. The latest breadth data provide a reason for cautious optimism, not confirmation that the risks surrounding AI spending have disappeared.
However, JPMorgan’s 8,000 year-end target rests partly on the expectation that improving participation and historical post-election trends will support another advance.