Fu Peng: US stock market breadth under pressure; widening drawdown spread between equal-weighted and composite indices may reach a critical threshold.

Bitfire Group Chief Economist Fu Peng (@fupenglondon) analyzes that under heavyweight stock support, the broad US equity index appears stable on the surface, yet the vast majority of stocks across the market are undergoing deeper technical drawdowns. Meanwhile, market-cap-weighted giants remain elevated, buoyed by passive flows and crowded holdings. He points out that when the orange line in the chart (the drawdown spread between equal-weight and composite indices) breaches the historical extreme range above 4%–6%, it signals that market breadth has been stretched to its limit. At this stage, even a slight catch-up decline among the giants could trigger a rapid, spike-like surge in the previously suppressed VIX. Recently, this drawdown spread has widened and reached a critical threshold, capping US market breadth. As volatility climbs, the prior suppression of volatility and the distortion of the diversification premium are beginning to correct.