The 'hidden' bear market in breadth

A stock index can look sturdy even when many of its members are already in a bear market. In April 2025, Liz Ann Sonders of Charles Schwab said the average stock’s drawdown was far deeper than the headline drop in the big benchmarks. (schwab.com) In a Charles Schwab market note published April 15, 2025, Sonders and Kevin Gordon wrote that the Standard and Poor’s 500 had fallen 9% from its 2025 high as of the prior Friday’s close. The average member of the index was down 19% over the same stretch. (advisoranalyst.com) The gap was wider in the Nasdaq, where the index was down 13% from its high while the average stock had dropped 33%, according to the same Charles Schwab chart cited in the video discussion. The Russell 2000 small-cap index also showed broader pain than the headline number suggested. (youtube.com) That split comes from how the indexes are built. Standard and Poor’s says its United States equity indexes are weighted by float-adjusted market capitalization, which gives the biggest companies the biggest influence on daily moves. (spglobal.com) Nasdaq uses a modified market-capitalization weighting scheme for the Nasdaq-100, which still leaves the largest companies with outsized sway even after caps are applied. When a handful of giant stocks hold up, index-level losses can stay modest while many smaller constituents sink much further. (indexes.nasdaq.com) Sonders used drawdowns rather than year-end returns to show the difference. A drawdown measures the drop from a prior peak to a later trough, which captures pain that a final annual gain can hide. (advisoranalyst.com) Charles Schwab returned to the same point in a November 24, 2025 note after the rebound from the April 8 low. The firm said the Standard and Poor’s 500 was up 33% from that low, but the average member still suffered an 18% maximum drawdown during the advance; in the Nasdaq, the index was up 46% while the average member’s maximum drawdown reached 41%. (schwab.com) Other index providers publish alternate versions to expose that difference. Standard and Poor’s says its Standard and Poor’s 500 Equal Weight Index holds the same companies as the main benchmark but assigns each stock the same weight instead of letting the largest firms dominate. (spice-indices.com) Charles Schwab said in March 2026 that market internals were showing “widening dispersion, falling correlations, and broadening participation” even when headline indexes looked relatively calm. That is the same basic warning from the 2025 episode: the index can be stable while the average stock is not. (schwab.com)