Yardeni: Stock market has a bad breadth problem

The stock market is facing a “bad breadth problem,” according to Yardeni Research analysts.

Analysts explained in a note that initially, the issue seemed linked to the outperformance of the Magnificent-7. However, the focus has now narrowed to a single standout: Nvidia (NASDAQ:). This shift in market dynamics has raised concerns about the sustainability of the broader market rally.

Investment strategists are adjusting their year-end targets upward, yet Yardeni Research remains consistent with its year-end target of 5400.

While neutral on the market’s near-term prospects, the firm maintains a bullish outlook for the long-term trend. Despite this, analysts highlight potential headwinds, including growing political uncertainties both globally and domestically.

Analysts believe the escalating conflict in the Middle East poses a significant risk, potentially expanding into a broader regional conflict. Domestically, they state that the partisan divide in the U.S. is expected to deepen as the presidential election approaches, adding to market volatility.

Analysts note that the two Bull/Bear Ratios they track remain relatively bullish, which, from a contrarian perspective, could be a bearish signal.

The upcoming release of the PCED inflation rate for May will be a key indicator to watch. Analysts expect the data to show continued moderation in inflation, which should be bullish for stocks, provided prices do not surge due to increasing geopolitical risks.