Memory chip selloff contrasts with improving stock market breadth: Kobeissi

The U.S. stock market is showing signs of broadening strength even as investors retreat from one of the semiconductor industry's hottest trades, according to market data highlighted by The Kobeissi Letter.

The Kobeissi Letter, a financial markets commentary published by investment adviser Adam Kobessi with 2.6 million followers on X, pointed to a sharp decline in memory chip investments alongside improving participation among stocks in the S&P 500 index (SP500).

The Memory ETF (DRAM) has recorded $2 billion in net outflows so far in October, putting it on pace for its largest monthly withdrawal since launching April 2, according to The Kobeissi Letter. The fund previously experienced withdrawals of $1.6 billion in September and $400 million in August.

The fund also recorded $105 million in withdrawals last week, marking its ninth consecutive week of outflows. Its share price has fallen 23% this month to its lowest level since early May.

Despite the recent selloff, DRAM (DRAM) remains up 70% since inception, after gaining as much as 190% by mid-June. The leveraged Memory ETF (RAM), which seeks twice the daily performance of its underlying benchmark, has declined 66% since its June 24 debut.

For investors, the contrasting trends suggest a potential shift in market leadership as enthusiasm for memory chips cools while gains spread to a wider range of stocks. Improving market breadth could make the broader market less dependent on a handful of technology companies to sustain its advance. However, continued weakness in semiconductor shares could also signal concerns about valuations, demand expectations and the sustainability of artificial intelligence-related spending.

More S&P 500 stocks participate in market gains

The percentage of S&P 500 (SP500) stocks trading above their 50-day moving averages rose five percentage points Friday to 61%, the highest level since mid-August, according to The Kobeissi Letter. That proportion has more than tripled since an intraday low on Oct. 1.

Meanwhile, 57% of index constituents are trading above their 200-day moving averages, an increase of three percentage points Friday and the highest reading since Sept. 9. The measure has risen 17 percentage points over the past three weeks, even as the S&P 500 has remained roughly unchanged.

The improvement ranks among the three sharpest increases in market breadth over the past three years, the publication said.

The divergence was particularly striking Thursday, when 335 stocks in the S&P 500 (SP500) finished higher even though the capitalization-weighted index declined 1.2%.

The figures suggest that weakness among some of the index's largest companies may be masking stronger performance elsewhere in the market. Because the S&P 500 (SP500) is weighted by market capitalization, declines in a relatively small number of heavily weighted stocks can outweigh gains across hundreds of smaller constituents.

The widening participation could be a constructive development for investors concerned about market concentration. Still, the improvement in breadth has yet to translate into meaningful gains for the benchmark index, leaving open the question of whether the rotation can support a sustained advance.

Editor’s note: ETF flows and market breadth figures cited by the Kobeissi Letter haven’t been independently verified.