Stocks are moving in sync again for the first time in a while. There's just one problem.

By Joseph Adinolfi

The market is moving in the wrong direction

Stocks are enjoying a rare moment of unity.

An increasingly divided U.S. equity market is enjoying a rare moment of unity. Unfortunately, it has coincided with the biggest selloff in more than a year.

Some say that's a sign that a real washout might be just beginning.

On Thursday, investors witnessed the most broad-based selloff of 2026, as fears that newly empowered Democrats would take steps to slow the data-center buildout rippled through the U.S. equity market. Major indexes like the S&P 500 SPX tallied their worst showing since the April 2025 tariff tantrum, while 430 members of the index finished lower - the most in a single session since Dec. 31, Dow Jones Market Data showed.

As the selling deepened, signs of genuine panic began to emerge. Downside trading volume on the New York Stock Exchange - which measures the sum of the daily trading volume in stocks that are moving lower - soared above 80% on Thursday for the first time since Nov. 17, 2025, Dow Jones Market Data showed. That ended a stretch of more than 240 trading sessions without such an elevated reading, the longest in at least 30 years, according to BTIG's Jonathan Krinsky.

"It was a major distribution day," Krinsky told MarketWatch, using Wall Street jargon to describe a sharp selloff driven by institutional investors.

Since the beginning of this bull market, investors have become increasingly eager to differentiate between two camps within the stock market - "AI stocks" vs. "non-AI stocks."

This has created an unusual dynamic where major indexes have frequently moved in an opposite direction to a majority of their members. From the beginning of 2026 through late October, the S&P 500 moved in the opposite direction of most of its member stocks during roughly one-third of all trading sessions, according to Krinsky and his team. That is the most in any calendar year on record over the past few decades.

As correlation between individual stocks fell to one of the lowest levels on record, investors began to wonder what might happen when these relationships started to normalize. Now, they have an answer.

"I think we'll see one more leg lower, and then there will be a better base for a rebound," Krinsky said.

In commentary shared with MarketWatch, Krinsky noted some of the signs he is looking for before buying the dip. More than 25% of S&P 500 stocks were trading in overbought territory, while 70% were trading above their 200-day moving average. That doesn't exactly scream capitulation, Krinsky wrote.

Ultimately, he expects the S&P 500 will move closer to 7,000 as investors see a more widespread deterioration in individual names. The index finished Friday just below 7,400, according to FactSet data.

Krinsky isn't the only one on Wall Street who is waiting for more signs of a real washout before advising clients to buy the dip.

"Until support holds and leadership stabilizes, investors should prioritize capital preservation over buying the dip," said Craig Johnson, a technical strategist at Piper Sandler, in commentary shared with MarketWatch.

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-08-26 0900ET