(Bloomberg) -- U.S. equities are being pushed along by the fewest stocks in more than 15 years, a sign of fatigue in a bull market that already rivals anything since World War II in duration.
More than 100% of this year's increase in the Standard & Poor's 500 Index is attributable to two sectors, health-care and retail. That's the tightest clustering for an advancing year since at least 2000, data compiled by Bloomberg show.
Breadth has fallen apart in a rally that is now the third longest since 1940, leaving investors exposed after three years without a 10% correction. Adding to concerns: the two industries shouldering this year's advance trade at more than 22 times annual earnings -- a 20% premium to everything else.
"You've gone from a market which lives or dies by people's feelings about the macro environment to a market that's going to live or die according to the bottom-up beliefs of the prospect of a limited number of individual issues," said Michael Shaoul, chief executive officer at New York-based Marketfield Asset Management, which oversees $5 billion.
The S&P 500 slipped 0.6% at 9:50 a.m. in New York, poised for a fifth consecutive decline, the longest streak since January.
Reliance on fewer and fewer companies has been a hallmark of maturing bull markets, most memorably the Internet bubble when six computer and software companies accounted for 55% of the S&P 500's gain over the 12 months leading up to the peak.
APPLE, GOOGLE
A handful of technology stocks, many of which show up in retail indexes today, are reprising the role. Combined gains from Amazon.com Inc., Apple Inc., Facebook Inc., Google Inc. and Netflix Inc. actually exceed the S&P 500's in 2015.
That reliance has been on display this earnings season. Apple, which makes up twice as much of the S&P 500 as any other company, ignited a selloff in the index on July 22 after saying iPhone sales rose only 35% last quarter.
A week earlier, Google's better-than-expected earnings sparked a 16% jump in shares, lifting the S&P 500 even as 72% of the index's constituents fell. Days like that have left a version of the S&P 500 that strips out market-value biases trailing the regular index for the first time since 2012 -- the last year a retreat came anywhere near 10%.
"There has been a scarcity of growth in the market," said Aaron Clark, a portfolio manager at GW&K Investment Management in Boston, which oversees about $25 billion. "Those companies that are delivering on growth, investors are rightfully willing to pay more for them."
CHASING GROWTH
Investors are abandoning everything but the fastest growing companies in a year where analysts see profit gains slowing to 1% from an annualized rate of 15% the last six. Drugmakers and suppliers of non-essential consumer goods, whose earnings are expected to rise about 11%, have rallied 9%, more than triple the next group.
After adding $17 trillion in value since 2009, shares are more expensive than they've been 90% of the time in the past decade and valuations of the winning stocks are higher.
Health-care companies have led the bull market since the start of 2013, rising 87% to push their price-earnings ratio to 23.4, about 40% higher than its average since 2010. Consumer discretionary shares, the next-best performer with a 66% advance, cost 22.3 times annual profit, compared with a five-year average of 18.
Even though equities are stuck in the tightest range ever, fewer stocks are keeping pace with the market. The S&P 500 Equal Weight Index is down 0.9% in 2015, trailing the market- cap weighted measure by 1.9 percentage points.
'OLD WISDOM'
The proliferation of exchange-traded funds has debased breadth as an indicator of stock-market health, said Tom Mangan, a fund manager at James Investment Research in Xenia, Ohio. Where once a dispersion of gains reflected millions of individual decisions to buy shares, far fewer are necessary today when the biggest owner of most stocks in the S&P 500 is a passive fund that can be bought with the push of a button.
"With the prominence of ETFs, the breadth of the market becomes irrelevant, doesn't it?" said Mangan, who helps oversee $6.5 billion at James Investment. "The more prominent index investing is, the more that calls into question the old wisdom that the market needs to have wide breadth in advances to sustain them."
An improved labor market and the expansion of the Affordable Care Act are underpinning the outperformance by consumer and health-care shares, a trend that will last for years, he said.
CONCENTRATION RISK
U.S. stocks have gone without a 10% retreat from a peak for almost 1,400 days, the third-longest stretch ever. Since 1927, corrections tend to occur every eight months, data compiled by Bloomberg show.
With stocks like Apple and Google overwhelming the market, investors need to be mindful of the risk they're taking with concentrated bets, according to Roger Scheffel, a fund manager who helps oversee more than $2.5 billion with Wilbanks, Smith & Thomas Asset Management LLC.
"The question is, how irrational can people continue to be in adding money to them?" Scheffel said from Norfolk, Virginia. "It's probably going to hit the market pretty heavy if those stocks turn."
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