Author Gregory Maguire is quoted with saying, “Remember to breathe. It is, after all, the secret of life.” So, if breath is the secret of life, is breadth the secret to the markets?

Conversations with clients in recent weeks have reminded me that many investors continue to believe the market (as measured by the S&P 500 Index) has been carried to all-time-record highs by a small handful of stocks that we continue to hear about in the daily news.

But the rise to current market levels has not been as narrow as you may think. In fact, market breadth, meaning the number of stocks participating in the rally, has been increasing over the past several months.

Here is a little background on markets to help understand the comparison drawn below. Market capitalization shows the value of a corporation by multiplying the company’s stock price by the number of stocks it has outstanding.

To be considered a large-capitalization company, a company’s market capitalization must be $10 billion or more. The S&P 500 is made up of large-capitalization stocks that are capitalization-weighted, which means changes in share prices of the most valuable companies have a bigger influence on the day-to-day movement of the overall index.

We are familiar with the names of these well-known companies that frequently appear in the news headlines as many of us use their products and services — maybe even more while spending so much time at home during the pandemic.

But there is also a version of the S&P 500 that equal weights all companies, so price movements in the shares of the smallest-capitalization companies have the same impact on the index’s level as the largest-capitalization companies.

Comparing these two versions of the S&P 500 helps us to better understand the extent of market breadth. Since the last quarter of 2020, the equal-weighted S&P 500 has outperformed the capitalization-weighted S&P 500 by approximately 5%, meaning more companies are participating in the market’s gains.

Another way to gauge breadth is by industry group participation.

Of the 63 industry groups represented in the S&P 500, 57 have posted positive returns over the past six months. Over that time frame, 36 of those groups with positive returns have beat the return on the S&P 500 on a market-weighted basis.

But large-capitalization stocks are not the only ones moving higher.

The Russell 2000 is an index that tracks stocks of small-capitalization companies (market capitalization of $300 million to $2 billion). This index has also been setting new record highs over the past several months and has outperformed the S&P 500 by more than 30% since late September.

This is a positive indication of increasing market breadth as well.

As stated by James Cash Penney, the founder J.C. Penney department stores, “Growth is never by mere chance; it is the result of forces working together.”

Market breadth can grant insight into the strength and force of market movements. We can better understand when we look beyond just the index number to determine which forces are at play.

Wendy Bennett is a senior financial adviser at Bennett Associates Wealth Management in Butler.